Journal of Investment Strategies

Cryptocurrency versus other financial instruments: how a small market affects a large market

Anna Szczepańska-Przekota

  • The volatility of cryptocurrency quotes makes them the most risky financial instrument.
  • The situation in the Bitcoin market is independent of other financial markets, while inversely the situation in the Bitcoin market has a significant impact on other financial markets.
  • The future of the cryptocurrency market is unclear. They are not under state control, but state institutions may restrict their use.

Over the past few years the idea of an international virtual currency has been implemented practically. Because it represents a convenient way of transferring funds, cryptocurrency has become a substitute for traditional money as a modern electronic means of payment that could potentially change the current financial system. In this context, the digital currency market can be assessed in terms of this emerging economic sector, which competes with traditional financial markets. This study analyzes the impact of cryptocurrencies on the function and position of financial markets. It covers the economic situation of the cryptocurrency market, capital market (Standard & Poor’s 500 index), commodity market (gold and oil) and currency market (US dollars or euros), which are characterized by descriptive statistics. Our business linkage studies are based on correlation using weekly data for the period January 2017–March 2021. Despite the fact that cryptocurrencies have aroused great interest, this is still an additional small market that does not constitute much competition to traditional financial markets. Until now, stock markets were considered the most risky; cryptocurrency markets can now be considered as such: they offer considerable income but are very unstable.

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