Can Environmental Variables Predict Cryptocurrency Returns? Evidence from Bitcoin, Ethereum, and Tether Using a Time-Varying Coefficients Vector Autoregression Model

Kamel Touhami, Ilyes Abidi (), Mariem Nsaibi and Maissa Mejri
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Kamel Touhami: Faculty of Economics and Management of Nabeul, University of Carthage, Tunisia, University Campus Mrezga Route Hammamet, Nabeul 8000, Tunisia
Ilyes Abidi: Department of Management Information Systems, Applied College, University of Ha’il, Hail City P.O. Box 2440, Saudi Arabia
Mariem Nsaibi: Department of Management Information Systems, Applied College, University of Ha’il, Hail City P.O. Box 2440, Saudi Arabia
Maissa Mejri: Faculty of Economics and Management of Nabeul, University of Carthage, Tunisia, University Campus Mrezga Route Hammamet, Nabeul 8000, Tunisia

Risks, 2025, vol. 13, issue 4, 1-21

Abstract: This study investigates the impact of environmental variables, such as carbon emissions and temperature anomalies, on cryptocurrency returns. While existing research has primarily focused on economic and financial determinants, the influence of environmental factors remains underexplored. Using Dynamic Conditional Correlation GARCH (DCC-GARCH) and Time-Varying Coefficients Vector Autoregression (TVC-VAR) models, this study provides empirical evidence that environmental variables significantly affect the volatility and returns of Bitcoin, Ethereum, and Tether. The results show that Bitcoin and Ethereum are highly sensitive to CO 2 emissions and temperature fluctuations, while Tether demonstrates a more moderate response. Moreover, the impact of these environmental factors evolves over time, underscoring their dynamic nature in cryptocurrency valuation. These findings highlight the importance of incorporating environmental variables into forecasting models to enhance risk management and investment strategies. This study contributes to the literature by bridging the gap between environmental concerns and cryptocurrency market behavior, offering valuable insights for investors, regulators, and policymakers.

Keywords: Bitcoin; Ethereum; Tether; CO 2 emissions; temperature anomalies; DCC-GARCH; TVC-VAR (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:13:y:2025:i:4:p:72-:d:1629446

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