Cryptocurrency Implied Volatility as a Driver of the Interlinkages Across Cryptocurrencies’ Returns: A Wavelet Analysis

Abstract

Among the plethora of literature on interlinkages in markets, more focus has been on peripheral factors. This study attempts to fill this gap by exploring volatility as driver for interlinkages between Bitcoin, Ethereum, Tether, USD-Coin, Binance Coin (BNB), and the crypto-volatility-index (CVI) from April 2019 to August 2022. Using various wavelet techniques, the study depicts significant interlinkages across short-term, medium-term, and long-term horizons, with relatively stronger interlinkages in the long term. The findings confirm that while CVI does not drive these interlinkages, Ethereum, Bitcoin, and CVI play dominant roles in the short, interim, and medium-term periods, respectively, offering new insights into the dynamism of cryptocurrency markets.