The Dynamics of the Relationship Between Price and Volume of Cryptocurrencies

Abstract

In this study, the authors investigate the volume as the pricing driver of the top three cryptocurrencies (Bitcoin, Ethereum, and Binance) based on a wavelet analysis from January 1, 2019 to December 31, 2021. The dynamics of the relationship between price and volume in the cryptocurrency market could have valuable market implications for stakeholders and investors and contribute to making optimal investment decisions via portfolio diversification strategies. The results reveal that the relationship between price and volume is positive in the medium and long term and that price is the leading volume for both Bitcoin and Binance markets. The findings suggest that the COVID-19 pandemic significantly affected the cryptocurrency price and volume series links. Indeed, these results contribute to the emerging and growing literature on cryptocurrencies in the time of COVID-19, which has received limited attention during the pandemic compared to the classical asset financial classes.