# High Frequency Price Change Spillovers in Bitcoin Markets

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## Abstract

**:**

## 1. Introduction

## 2. Literature Review

## 3. Methodology

## 4. Data

## 5. Empirical Findings

## 6. Robustness

## 7. Conclusions

## Author Contributions

## Funding

## Conflicts of Interest

## References

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1 | Exchange prices were collected from http://www.cryptodatadownload.com/data. |

2 | The five exchanges were selected accounting for their total market capitalization and data availability over the time period studied. |

3 | The first two choices are in line with (Diebold and Yilmaz 2014), who fix their forecast horizon to $H=12$ for the variance decomposition and the lag length of the approximating VAR model to 3. The second choice was pursued for empirical reasons, meaning that we considered the previous two full Bitcoin trading weeks to carry on the estimations. |

4 | A similar robustness analysis is performed by Diebold and Yilmaz (2014). By means of increasing and decreasing the estimation parameters by +50% and −50%, we are coherent with their choices with regards to the forecast horizon ($H=6,12,18$), while we take into account an even wider range of rolling window widths ($w=168,336,504$ as opposed to $w=75,100,125$), ensuring a punctual robustness check of our outcomes. |

**Figure 1.**Bitstamp price (USD). Note: The figure shows the Bitstamp price series (USD) related to the sample period 1 July 2017–30 June 2018. Dotted lines indicate the dates at which the main events related to cryptocurrencies described in Table 1 occurred.

**Figure 2.**Exchange continuous returns. Note: The figure illustrates the analyzed Bitcoin exchange continuous returns during the sample period 1 July 2017–30 June 2018.

**Figure 3.**Total Spillover Index (TSI). Note: The plot illustrates the total return spillover index versus the Bitstamp Bitcoin price series. The rolling window set for the estimations is 2 weeks. Values for the TSI are expressed in percentage terms, while the Bitcoin price is denominated in USD.

**Figure 4.**Directional Spillover Indexes (DSI). Note: The figure shows the directional return spillover indexes “from” others (

**a**) and “to” others (

**b**), as well as the net ones (

**c**). The rolling window set for the estimations is 336 h—corresponding to two weeks. Values are expressed in percentage terms.

**Figure 5.**Net Pairwise Spillover Indexes (NPSI). Note: The figure illustrates the net pairwise return spillover indexes. The rolling window set for the estimations is 336 h—corresponding to two weeks. Values are expressed in percentage terms.

**Figure 6.**Robustness analysis. Note: The figure shows the TSI with estimation window widths w of 168, 336, and 504 h—corresponding to 1, 2, and 3 weeks, respectively—and predictive horizons H of 6, 12, and 18 h. Values are expressed in percentage terms.

Date | Event | Description |
---|---|---|

(1) 01/08/2017 | Bitcoin Cash hard fork | Bitcoin forked into two derivative digital currencies, the Bitcoin (BTC) chain with 1 MB blocksize limit and the Bitcoin Cash (BCH) chain with 8 MB blocksize limit. |

(2) 04/09/2017 | China banning Initial Coin Offerings (ICOs) | People’s Bank of China banned fund raising by ICOs referring to the threat to economic and financial stability. Largely due to the high amount of suspicious ICOs accused of illegally raising money and aiding intentional fraud. |

(3) 16/09/2017 | China exiting local trading | Chinese authorities announced a ban on trading cryptocurrencies at national exchange services. Firstly, leaked documents were online just four days after the ban of ICOs, on 8 September. On 15 September the Chinese platforms Huobi and OKCoin announced that they will halt trading for local customers by 31 October. |

(4) 24/10/2017 | Japan establish a self-regulatory industry body | The Financial Services Agency (FSA), the responsible overseer of banking, securities, insurance, and exchange sector of Japan, set up the Japan Virtual Currency Exchange Association (JVCEA)—a consortium of 16 FSA-approved domestic cryptocurrency exchanges—to establish as a certified fund settlement business association. |

(5) 24/10/2017 | Coinbase received New York state banking license | Coinbase Custody received a license to operate as an independent qualified custodian, i.e., a Limited Purpose Trust Company chartered by the New York Department of Financial Services (NYDFS). |

(6) 28/11/2017 | Bitcoin price $ 10,000 | Bitcoin price reaches the level of $10,000. |

(7) 01/12/2017 | CFTC Bitcoin futures approval | The Commodities Futures Trading Commission (CFTC) approved the request by CME Group and Cboe Global Markets to launch Bitcoin futures. The two markets, which were launched on December 10 and 18, respectively, allow investors to bet on the future price of Bitcoin. |

(8) 17/12/2017 | Bitcoin price $20,000 | Bitcoin price reaches the level of $20,000. |

(9) 19/12/2017 | Yapian filed for bankruptcy | Yapian, a company owning the Youbit cryptocurrency exchange in South Korea, filed for bankruptcy following a hack, saying it lost 17% of its assets. |

(10) 08/01/2018 | China scrutinizing mining | The Public Bank of China started to investigate Bitcoin mining and outlined the plan to deter Bitcoin miners by limiting power consumption. |

(11) 08/01/2018 | Korean crypto bank accounts investigation | Korean financial authorities launched an investigation into cryptocurrency-related services provided by local banks. In particular, the Financial Intelligence Unit (FIU)—a body under the Financial Services Commission (FSC) which monitors illegal financial activities—and the Financial Supervisory Commission - the country’s financial supervisor—were looking into cryptocurrency-related virtual accounts at six local banks to check their compliance with anti-money laundering regulations. |

(12) 16/01/2018 | Bitconnect exchange shut-down announcement | Bitconnect announced it would shut down its cryptocurrency exchange and lending operation after North Carolina and Texas regulators issued a cease-and-desist order against it, stating it was suspected of being fraudulent. |

(13) 22/01/2018 | South Korean regulation about anonymity | South Korea brought in a regulation requiring all Bitcoin traders to reveal their identity, hence banning anonymous trading of Bitcoins. |

(14) 26/01/2018 | Coincheck hacked | Japan’s largest cryptocurrency OTC market, Coincheck, was hacked and as much as 530 million USD of NEMs were stolen, causing Coincheck to suspend trading. |

(15) 05/02/2018 | China’s announcement of blocking foreign trading | With the aim of preventing Chinese investors from financial risks, as in September 2017, China’s authorities announced their willingness to ban trading of cryptocurrencies by blocking internet access to foreign trading platforms. |

(16) 07/03/2018 | Irregular trades | Compromised Binance API keys were used to place irregular trades. |

(17) Late 03/2018 | Social network bans | Facebook, Google, and Twitter banned advertisements for ICOs and token sales. |

(18) 13/04/2018 | Coinsecure robbery | Coinsecure, one of India’s biggest exchange platforms, lost 438 Bitcoins as a result of a theft. Based on the prices at the time of the occurrence of the event this translates to approximately 3 million $ (i.e., roughly 190 million rupees in local currency). |

Bitstamp | Gemini | Coinbase | Kraken | Bittrex | |
---|---|---|---|---|---|

Launched | Jul 2011 | Oct 2014 | May 2014 | Jul 2011 | Feb 2014 |

Headquarter location | UK | USA | USA | USA | USA |

Trading pairs | 14 | 15 | 53 | 95 | 355 |

BTC trading volume during analyzed period | 6.37 M | 2.63 M | 7.46 M | 5.46 M | NA |

Trading fees | 0.10–0.25% | 0.00–0.25% | 0.10–0.30% | 0.00–0.25% | 0.25% |

Fiat currencies withrawal/deposit time | 1–5 business days | 4–5 business days | 1–5 business days | 1–5 business days | - |

Supported currencies | USD, EUR | USD | USD, EUR, GBP | CAD, EUR, GBP, JPY, USD | USDT |

Bitstamp | Gemini | Coinbase | Kraken | Bittrex | |
---|---|---|---|---|---|

Mean | 0.0001 | 0.0001 | 0.0001 | 0.0001 | 0.0001 |

Median | 0.0002 | 0.0001 | 0.0009 | 0.0006 | 0.0006 |

Maximum | 0.1079 | 0.1083 | 0.1220 | 0.0980 | 0.0969 |

Minimum | −0.1076 | −0.1222 | −0.1979 | −0.1052 | −0.1565 |

Std. Dev. | 0.0122 | 0.0121 | 0.0122 | 0.0115 | 0.0124 |

Skewness | 0.0497 | 0.1303 | −1.3244 | −0.5429 | −0.9601 |

Kurtosis | 8.0090 | 9.3869 | 25.3352 | 9.4711 | 11.2719 |

Bitstamp | Gemini | Coinbase | Kraken | Bittrex | |
---|---|---|---|---|---|

p-value${}_{log-levels}$ | 0.7669 | 0.7718 | 0.7232 | 0.7945 | 0.7440 |

p-value${}_{log-returns}$ | <0.0100 | <0.0100 | <0.0100 | <0.0100 | <0.0100 |

Test Stat | Critical 10% | Critical 5% | Critical 1% | |
---|---|---|---|---|

h <= 4 | 3.10 | 6.50 | 8.18 | 11.65 |

h <= 3 | 188.84 | 15.66 | 17.95 | 3.52 |

h <= 2 | 752.42 | 28.71 | 31.52 | 37.22 |

h <= 1 | 1627.95 | 45.23 | 48.28 | 55.43 |

h = 0 | 3230.01 | 66.49 | 70.60 | 78.87 |

© 2019 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/).

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**MDPI and ACS Style**

Giudici, P.; Pagnottoni, P. High Frequency Price Change Spillovers in Bitcoin Markets. *Risks* **2019**, *7*, 111.
https://doi.org/10.3390/risks7040111

**AMA Style**

Giudici P, Pagnottoni P. High Frequency Price Change Spillovers in Bitcoin Markets. *Risks*. 2019; 7(4):111.
https://doi.org/10.3390/risks7040111

**Chicago/Turabian Style**

Giudici, Paolo, and Paolo Pagnottoni. 2019. "High Frequency Price Change Spillovers in Bitcoin Markets" *Risks* 7, no. 4: 111.
https://doi.org/10.3390/risks7040111