A Quanatitatve Investigation of the Relationship between the Prices and Trading Volume of Bitcoin and Other Cryptocurrencies

Abstract

The price of Bitcoin has been a topic of much interest in recent years, as it has experienced dramatic swings in value. However, the relationship between the price of Bitcoin and other cryptocurrencies is less well-understood. This paper presents a quantitative investigation of the relationship between the price of Bitcoin and the prices of other major cryptocurrencies, such as Ethereum, Litecoin, and Stellar. The paper uses correlation and regression analysis to investigate the relationship between the prices and volume traded of these cryptocurrencies. The results of the analysis show that there is a high degree of correlation between the prices of Bitcoin and other major cryptocurrencies. These findings indicate that when one cryptocurrency experiences a jump in value, there is an increased likelihood of similar jumps occurring in other cryptocurrencies. Notably, this co-jumping phenomenon is closely tied to spikes in trading volume. This underscores the critical role of trading volume fluctuations in influencing the overall volatility of cryptocurrencies. These results align with earlier research emphasizing the significance of trading volume in understanding the dynamics of cryptocurrency market volatility. This suggests that the price of Bitcoin may be a leading indicator for the prices of other cryptocurrencies. The findings of this paper suggest that the price of Bitcoin is not a standalone asset, but rather is influenced by the prices of other cryptocurrencies. This has important implications for investors who are considering investing in Bitcoin or other cryptocurrencies. The paper concludes by discussing the limitations of the study and by suggesting directions for future research.