Does climate risk drive digital asset returns?

Abstract

This research employs quantile-on-quantile regression and the quantile coherency method to examine the asymmetric effects of various climate-related risks (physical and transition) across different states (from high to low) on digital assets, including the returns from cryptocurrencies, non-fungible tokens (NFTs), and decentralized finance (DeFi). The findings indicate that climate-related risks negatively affect the returns of cryptocurrencies, NFTs, and DeFi assets in the upper quantiles, meaning that these risks reduce returns. Conversely, in the lower quantiles their impact is inverse, highlighting the asymmetric influence of climate-related risks on cryptocurrencies, NFTs, and the DeFi market.