Why are cryptocurrencies so unstable?

Abstract

This thesis examines the roots of price instability in cryptoasset markets. Using daily data from 2016 to 2022, it estimates volatility for Ethereum, XRP, Doge- coin, Stellar Lumen and Litecoin with the Garman-Klass range-based estima- tor. This exploits intraday price information that is usually not taken into con- sideration when using return-based metrics. A log-log two-stage least-squares framework relates volatility to exchange volume, on-chain transfers, active ad- dresses, stable-coin supply, own price, lagged volatility and Bitcoin's domi- nance, instrumenting endogenous variables with hash rate, circulating supply and traditional-market indicators. Results show that volatility of alternative cryptoassets reacts only weakly to conventional fundamentals: for Ethereum, user activity and stablecoin liquidity temper volatility while speculative trad- ing, price surges and persistence amplify it; for XRP and Dogecoin, none of the tested drivers matter besides persistence; for Stellar Lumen and Litecoin, Bit- coin dominance slightly stabilizes prices. Overall explanatory power is modest, suggesting that other undefined e!ects drive the volatility in alternative cryp- toasset markets. The study pioneers the combination of range-based volatility and instrumental-variables analysis in this field and...