# Cryptocurrencies Are Becoming Part of the World Global Financial Market

**Authors:** Marcin Wątorek, Jarosław Kwapień, Stanisław Drożdż  
**arXiv:** [2303.00495](https://arxiv.org/abs/2303.00495)  
**Date:** 2023-02-18  
**Summary page:** https://www.summarizepaper.com/en/paper/2303.00495v1/

## Key points

- The study measures cross-correlations between cryptocurrency market and traditional financial markets from January 2020 to October 2022.
- Bitcoin and Ethereum are the two most liquid and highest-capitalized cryptocurrencies studied, along with instruments representing stock indices, Forex, and commodities.
- The aim of the research is to determine whether the cryptocurrency market still maintains its autonomy or if it has aligned with traditional financial markets at the expense of its independence.
- A $q$-dependent detrended cross-correlation coefficient based on high-frequency 10-second data in a rolling window is used to examine dependence on various time scales, different fluctuation magnitudes, and different market periods.
- Results indicate that since March 2020 Covid-19 panic, there is a strong indication that the dynamics of Bitcoin and Ethereum price changes are no longer independent but instead related to traditional financial markets.
- Cryptocurrencies have begun reacting to economic data such as Consumer Price Index readings similarly to traditional instruments.
- Such spontaneous coupling of previously independent degrees of freedom can be interpreted as a kind of phase transition resembling collective phenomena typical for complex systems.
- Cryptocurrencies cannot be considered safe havens for financial investments due to their coupling with traditional financial markets.
- Limitations include only studying two principal cryptocurrencies (Bitcoin and Ethereum) which do not define the entire market and analysis including only a small fraction of available traditional financial instruments.
- Future studies must continue investigating cross-market dependencies within cryptocurrency research while also considering energy consumption within this market.

## Summary

In this study, conducted by Marcin Włodarczyk and his colleagues, the cross-correlations between the cryptocurrency market and traditional financial markets are measured in the period from January 2020 to October 2022. The study focuses on the two most liquid and highest-capitalized cryptocurrencies, Bitcoin and Ethereum, along with instruments representing stock indices, Forex, and commodities. The aim of the research is to determine whether the cryptocurrency market still maintains its autonomy or if it has aligned with traditional financial markets at the expense of its independence. The researchers used a $q$-dependent detrended cross-correlation coefficient based on high-frequency 10-second data in a rolling window to examine dependence on various time scales, different fluctuation magnitudes, and different market periods. The results indicate that since the March 2020 Covid-19 panic, there is a strong indication that the dynamics of Bitcoin and Ethereum price changes are no longer independent but instead related to traditional financial markets. This coupling is especially evident in 2022 when Bitcoin and Ethereum's coupling to US tech stocks is observed during a market bear phase. Furthermore, cryptocurrencies have begun reacting to economic data such as Consumer Price Index readings similarly to traditional instruments. Such spontaneous coupling of previously independent degrees of freedom can be interpreted as a kind of phase transition resembling collective phenomena typical for complex systems. These results suggest that cryptocurrencies cannot be considered safe havens for financial investments. The authors note some limitations that may have influenced their conclusions; only two principal cryptocurrencies were studied (Bitcoin and Ethereum), which do not define the entire market. Additionally, they acknowledge that their analysis includes only a small fraction of available traditional financial instruments; however, they believe these choices are among the most observed and influential ones in global economics. Overall, this study brings strong indications that after twelve years of maturation processes, cryptocurrencies have become another part of global financial markets. While this direction may not align with early cryptocurrency creators' visions, it does allow investors to broaden their investment possibilities. As inter-market couplings may not last forever due to complexity allowing flexible reactions by systems to external perturbations and internal processes; future studies must continue investigating cross-market dependencies within cryptocurrency research while also considering energy consumption within this market.