Global Financial Stress and Its Transmission to Cryptocurrency Markets: A Cointegration and Causality Approach

Sisira Colombage (), Asanga Jayawardhana and Giles Oatley
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Sisira Colombage: Institute of Innovation, Science and Sustainability, Federation University, Ballarat, VIC 3350, Australia
Asanga Jayawardhana: Institute of Innovation, Science and Sustainability, Federation University, Ballarat, VIC 3350, Australia
Giles Oatley: Institute of Innovation, Science and Sustainability, Federation University, Ballarat, VIC 3350, Australia

JRFM, 2025, vol. 18, issue 10, 1-24

Abstract: This study examines links between global financial stress and cryptocurrency returns from 1 January 2017 to 31 January 2025, while explicitly accounting for commodity markets. We use an econometric toolkit: unit-root and cointegration testing, ARDL bounds, Toda–Yamamoto causality, and a two-state Markov Switching model to trace long-run equilibrium and transmission mechanisms across cryptocurrencies (BGCI), systemic stress (OFR-FSI), volatility measures (VIX, VVIX, VSTOXX, VVSTOXX, MOVE), major equities and bonds, and three commodities (gold, oil, copper). Results show robust long-run cointegration between BGCI and several financial variables, including S&P/ASX 200 and the Bloomberg Barclays Bond Index; models that include commodities continue to support these long-term links. Toda–Yamamoto tests reveal that stress and volatility indices unidirectionally transmit shocks to cryptocurrencies and commodities, while gold displays a bidirectional relationship with BGCI, indicating a conditional safe haven interaction. Markov Switching estimates show amplified co-movement among BGCI, gold and bonds in stress regimes, with the model predominantly remaining in a normal state. Overall, cryptocurrencies are embedded within the broader financial system; commodities, especially gold, are used to moderate the stress crypto transmission and offer conditional diversification value during turmoil.

Keywords: cryptocurrency; bitcoin; volatility; financial stress; causality; cointegration (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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