Correlative Relationships Between Cryptoassets and Price Bubbles: Risk and Contagion Dynamics of Digital Markets

Authors : Oğuzhan Ece, Bülent Diclehan Çadırcı

Pages : 128-153

Doi:10.26650/JEPR1576498

View : 38 | Download : 102

Publication Date : 2025-02-14

Article Type : Research Paper

Abstract :The development of cryptographic digital markets and the growing number of investors have generated concerns about the formation of price bubbles. We can describe the formation of a price bubble as a manifestation of the pricing paradox, characterised by an increase in an asset’s value beyond its intrinsic worth. Investor sensitivity and emotional responses, disequilibrium in supply and demand, speculation and irrational investor behaviour, excessive volatility, and uncertainty nourish this paradoxical tendency. Examining balloon formations in these markets offers valuable insights for educating investors about market cycles and risk management, which can aid policymakers in preserving market stability and protecting financial systems. The objective of this study, which examines the phenomenon of price bubbles in digital asset markets, is to ascertain whether these bubbles are unique to the digital asset market or whether they have a broader economic origin. The objective is to identify, establish the stability of, and facilitate the prediction of price developments, with a particular focus on the potential for market crashes. The GSADF methodology examined 18 digital assets in total, including CCC, NFT, and DeFI, for price bubble formation in this context. The digital assets analysed in this study were selected based on their market representativeness, as evidenced by 200 weeks of observation data covering the period from October 5, 2020, to July 29, 2024. The analysis yielded two key findings: the existence of asset-specific and market-induced bubbles and the observation that different markets exhibit common risk sensitivity. Additionally, the movements of highly liquid digital assets (BTC, etc.) may serve as an indicator of impending market crashes due to their high correlation with other markets. The current body of research on cryptoassets tends to focus on traditional assets and relationships between binary or restricted asset groups, leaving this study poised to make a significant and comprehensive contribution to the existing literature on this subject. JEL Classification : G12 , G15 , C58
Keywords : Cryptocurrencies, NFT, DeFI, Price Bubbles, GSADF

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