The Impact of Gold Price Volatility on the Cryptocurrency Market: An Empirical Analysis Based on the VAR Model

Abstract

With the rapid growth of the cryptocurrency market, researchers increasingly study the price fluctuations and market behavior of digital assets. Gold, as a traditional safe-haven asset, often shows an inverse relationship with high-risk financial assets. Recently, scholars have focused on how gold market volatility affects cryptocurrencies, exploring potential co-movement or substitution effects. This study uses Python and econometric tools, including the Vector Autoregression (VAR) model, Granger causality test, impulse response functions, and forecast error variance decomposition, to analyze the impact of gold price changes on Bitcoin and Ethereum. Using weekly closing prices from 2018 to 2024, the results show that Bitcoin’s price is positively influenced by gold futures in the short to medium term, while gold shows a negative feedback response to Bitcoin’s returns with a two-period lag. Ethereum appears more independent and less affected by gold or Bitcoin. Strong interlinkages exist between Bitcoin and Ethereum, with Bitcoin playing a dominant role in influencing Ethereum’s price. This study has improved the understanding of the connections between cryptocurrencies and traditional assets., which also provides investors with insightful information on portfolio management.