Cryptocurrencies Volatility: Empirical Evidence

Cryptocurrencies have rapidly become popular as digital assets, and as the market evolves, it is of great importance to understand their volatility and risk behavior. They present specific challenges and opportunities given that are operating within a decentralized and fast-changing ecosystem. Thus, their volatility affects risk management, investment strategies, and market stability. Cryptocurrency volatility can create both opportunities and risks. While it can provide substantial returns, it also presents challenges in terms of investment strategy, regulatory frameworks, business operations, and economic stability. As the cryptocurrency market matures, it’s likely that solutions to manage volatility will evolve, but it remains a key concern for participants in the ecosystem. In this respect, the aim of the paper is to examine the volatility behavior of the main cryptocurrencies (Bitcoin, Ethereum, and Litecoin), for a recent period, i.e. from June 2018 to June 2023. Using both traditional and advanced GARCH models, the results show that these cryptocurrencies experience periods of high and low volatility, but there is no significant asymmetry effect in their responses. This suggests a balanced risk-return profile for investors. Furthermore, there is no evidence for risk premium within the sample, that is no link between risk and return. Additionally, past volatility has a greater impact on current volatility than new information, since GARCH coefficients are significantly higher than the ARCH coefficients. These insights can help investors, policymakers, and researchers to manage the cryptocurrency markets more effectively.