A Bitcoin crash won't impact traditional markets

Posted Mar 10, 2018 by Tim Sandle
A Bitcoin crash would probably derail other cryptocurrencies, according to new research. However, more traditional markets would be relatively insulated from a sharp devaluation.
A man walks out of a shop displaying a Bitcoin sign during the opening ceremony of the first Bitcoin...
A man walks out of a shop displaying a Bitcoin sign during the opening ceremony of the first Bitcoin retail shop in Hong Kong on February 28, 2014
Philippe Lopez, AFP/File
The new study, from Anglia Ruskin University in the U.K., shows how a sharp fall in the value of Bitcoin will probably trigger other cryptocurrencies to crash. However,. the overall effect is unlikely to have a lasting impact on traditional assets.
In the study the researchers looked into the recent performance of three established cryptocurrencies: Bitcoin, Litecoin and Ripple. In doing so the researchers assessed the relationship of these cryptocurrencies with a variety of other financial assets, including gold, bonds and stocks.
This analysis showed that variations in the price of Bitcoin prices affect Ripple, with a spillover of 28.37 percent. Bitcoin similarily affects Litecoin (42.3 percent). In terms of other assets, the largest spillover from a cryptocurrency to a traditional asset was Bitcoin to Forex ( the foreign exchange market for currency trading), which was at 15.25 percent.
The research further discovered that the volatility of cryptocurrencies is far higher than that of other assets. Here Ripple and Litecoin have very limited influence on Bitcoin. This signals that Bitcoin is the main leader in the cryptocurrency market. Based on the analysis the researchers further conclude that results show that cryptocurrencies may offer diversification benefits for investors with short investment horizons.
On this point, lead researcher Dr Larisa Yarovaya states: "Our results support the position that cryptocurrencies are a new investment asset class and have a role in an investor portfolio, being highly connected to each other but disconnected from mainstream assets."
The research has been published in the journal Economics Letters, in a paper titled "Exploring the dynamic relationships between cryptocurrencies and other financial assets." Provided, that is, investors accept the idiosyncratic risks that come with digital currencies.
In related Bitcoin news, other research, from the University of Edinburgh, has found that devices used to manage accounts using Bitcoin need to be improved in order to provide better protection against hackers. With this research, computer scientists have found several security weak spots in gadgets used to manage personal accounts using Bitcoin. This was demonstrated through a practical experiment. Here the researchers created a simple piece of malware. This malicious code was able to intercept messages sent between hardware wallets and computers: locations where users manage their Bitcoin accounts. Based on this, the researchers are recommending tighter security protocols are put in place.