## Cryptic Connections: Spillovers between Crypto and Equity Markets

_Global Financial Stability Notes, January 11, 2022_

## Source details

**Canonical URL:** [Cryptic Connections: Spillovers between Crypto and Equity Markets](https://www.imf.org/en/publications/global-financial-stability-notes/issues/2022/01/10/cryptic-connections-511776)

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## Bibliographic details
- Authors: Tara Iyer
- Published: January 11, 2022
- Series: Global Financial Stability Notes
- DOI: https://doi.org/10.5089/9781616358068.065

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### Overview and scope
- Examines the extent to which crypto assets have moved to the mainstream by estimating potential spillovers between crypto and equity markets in the United States and in emerging markets.
- Uses daily data on price volatility and returns to measure connectedness and spillovers.
- Focus on Bitcoin (the oldest and most popular crypto asset) and Tether (the most traded stablecoin), and their relationships with the S&P 500 and MSCI emerging markets indices.

### Key empirical findings
- Crypto and equity markets have become increasingly interconnected across economies over time.
- Spillovers from price volatility of Bitcoin to the S&P 500 and MSCI emerging markets indices have increased by about 12-16 percentage points since the onset of the COVID-19 pandemic.
- Spillovers from Bitcoin returns to these indices have increased by about 8-10 percentage points since the onset of the COVID-19 pandemic.
- Spillovers from Tether to these indices have increased by about 4-6 percentage points since the onset of the COVID-19 pandemic.
- In absolute terms, spillovers from Bitcoin to global equity markets:
  - Explain about 14-18 percent of the variation in equity price volatility.
  - Explain about 8-10 percent of the variation in equity returns.

### Interpretation and implications
- The magnitude and increase in spillovers indicate that crypto markets are no longer fully isolated from mainstream equity markets, including in emerging markets.
- Given the significant share of equity volatility and returns explained by Bitcoin, crypto asset movements can materially affect broader financial market dynamics.
- Increased interconnectedness, especially during and after the COVID-19 pandemic, heightens the potential for transmission of extreme price volatility across asset classes and borders.

### Policy recommendations and monitoring
- Close monitoring of crypto asset markets is warranted to detect and assess evolving spillover dynamics.
- Adoption of appropriate regulatory policies is recommended to mitigate potential financial stability risks arising from increased crypto–equity market connectedness.

*Source: Global Financial Stability Notes — "Cryptic Connections: Spillovers between Crypto and Equity Markets" (Tara Iyer, January 11, 2022).*

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_Source: https://www.imf.org/en/publications/global-financial-stability-notes/issues/2022/01/10/cryptic-connections-511776_