Virtual relationships: Short- and long-run evidence from BitCoin and altcoin markets

TLDR

Virtual currency supply is exogenous and has limited influence on price formation. The study empirically investigates short‑ and long‑run interdependencies between Bitcoin and altcoin markets. The authors use time‑series analysis on daily data from 17 virtual currencies and two altcoin indices covering 2013–2016. The analysis confirms interdependence between Bitcoin and altcoin markets, with a stronger short‑run than long‑run relationship; the expected stronger link with price‑similar altcoins was not fully supported, and macro‑financial factors influence long‑run altcoin pricing more than Bitcoin.

Abstract

This paper empirically examines interdependencies between BitCoin and altcoin markets in the short- and long-run. We apply time-series analytical mechanisms to daily data of 17 virtual currencies (BitCoin + 16 alternative virtual currencies) and two altcoin price indices for the period 2013–2016. Our empirical findings confirm that indeed BitCoin and altcoin markets are interdependent. The BitCoin-altcoin price relationship is significantly stronger in the short-run than in the long-run. We cannot fully confirm the hypothesis that the BitCoin price relationship is stronger with those altcoins that are more similar in their price formation mechanism to BitCoin. In the long-run, macro-financial indicators determine the altcoin price formation to a slightly greater degree than BitCoin does. The virtual currency supply is exogenous and therefore plays only a limited role in the price formation.