Understanding the connectedness between US traditional assets and green cryptocurrencies during crises

Abstract

This research examines the dynamic interaction between conventional financial assets, namely the US dollar, the S&P 500 index, gold and crude oil, and ten major green cryptocurrencies, focusing on their spillover linkages and hedging capacities during major global economic and geopolitical shocks. The study analyses daily data to uncover spillover effects using the innovative Quantile-Vector Autoregressive methodology developed by Cunado et al. (2023). Results indicate that green cryptocurrencies significantly interact with other examined instruments. Algorand, Cardano, IOTA, TRON and Powerledger demonstrate the largest interactive effects, with the latter standing out as a consistent transmitter of influence across both crises, demonstrating that this sub-class of cryptocurrency is exhibiting elevated maturity. Traditional assets predominantly act as receivers of such risk dynamics from more speculative asset classes, with gold identified as an effective absorber of spillovers, especially in bear markets. Conversely, the US dollar and crude oil are identified as large transmitters of spillover impacts, a result found to be particularly influential in periods of geopolitical conflict. The study further reveals that green cryptocurrencies promoting trust, innovation, and renewable energy are more effectively connected with traditional investments than those focusing on financial services or business accessibility, presenting diversification opportunities during crises.