Dynamic cross-correlation in emerging cryptocurrency market

Lifu Jin, Bo Zheng, Xiongfei Jiang, Long Xiong, Jiu Zhang and Jiahao Ma

Physica A: Statistical Mechanics and its Applications, 2025, vol. 668, issue C

Abstract: The dynamic of the emerging cryptocurrency market is explored based on 69 cryptocurrencies from 2020 to 2023. The random matrix theory is introduced to analyze the structure of the cross-correlation, and the Shannon entropy to characterize the evolution of the eigenmodes. The results suggest that the cryptocurrency market has gradually transformed into a mature one. In particular, Bitcoin and Ethereum play important roles during this period. The spatial structure, which is impacted by the external forces such as the political and business events, exhibits three typical states. Using a variation of the two-factor model, we simulate the dynamics of the cryptocurrency market. In addition, the Epps effect is observed in the cryptocurrency market.

Keywords: Cryptocurrency; Cross-correlation; Random matrix theory; Financial dynamics (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:668:y:2025:i:c:s0378437125002201

DOI: 10.1016/j.physa.2025.130568

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