Causal wavelet analysis of the Bitcoin price dynamics

Jose Alvarez-Ramirez, Gilberto Espinosa-Paredes and E. Jaime Vernon-Carter

Physica A: Statistical Mechanics and its Applications, 2025, vol. 658, issue C

Abstract: This study employed wavelet analysis to investigate Bitcoin price dynamics from 2014 to 2024. Unlike existing research, which relies on bidirectional wavelet functions, our approach utilized causal wavelet analysis. This method ensures that wavelet basis functions only account for past values, reflecting the impact of past prices on present prices while maintaining causality. The complex Morlet wavelet revealed that market complexity varies over time and scale. Our results showed that regions of high wavelet power coincide with bearish market phases leading to historical price maxima. The phase scalogram indicated that price return dynamics are primarily dominated by even components, reflecting fluctuation patterns across a wide range of oscillation frequencies. In a secondary analysis, we modified the wavelet analysis by decoupling the oscillation scale and the modulation (memory) function scale. This allowed us to estimate the decaying memory characteristic time scale. The resulting scalograms exhibited sharper magnitude and phase patterns, suggesting that Bitcoin price return dynamics are influenced by long-run memory. Our findings conclude that incorporating causality and long-run memory into wavelet analysis provides a more accurate characterization of cryptocurrency price dynamics.

Keywords: Bitcoin; Causal wavelet; Phase (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437124008173
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:658:y:2025:i:c:s0378437124008173

DOI: 10.1016/j.physa.2024.130307

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().