Faculty & Research -Development of the crypto currency market

Development of the crypto currency market

During 2021-23 Akanksha Jalan and Roman Matkovskyy launched a broad and multi-dimensional research project on the crypto market and its main counterparts to better understand their functioning, efficiency, liquidity, volatility, hedging, arbitrage characteristics, risks and behaviour, including that during the COVID19 pandemic. The objective is to create a better understanding of the rather new asset class and use this understanding to build effective and better-informed investment strategies.

Underpinning research

One the key developments in cryptocurrencies was the introduction of futures trading in the Bitcoin, an event that was seen as a sign of acceptance of the Bitcoin as a tradeable speculative asset in the larger, traditional financial system. Our results indicate that the introduction of bitcoin futures potentially exerted a downward impact on the USD bitcoin spot market return and skewness and an upward one on volatility, kurtosis and liquidity, which became higher after futures were introduced.

In terms of hedging characteristics, we find that while bullish UK, Euro and Japanese Bitcoin markets facilitate hedging against inflation by offering higher returns, the USD Bitcoin market performs worse with inflation. In general, our results indicate an asymmetric relationship between inflation, both realized and unexpected, and alternative investments such as the Bitcoin.

We find that at the beginning of the COVID19 pandemic, cryptocurrencies as a group, turned out to be the riskiest in the long-term, with a more than 50% decline in value coupled with high degrees of persistence. Our results raise questions as to the safe haven characteristics of the newly popular Bitcoin.

The “black swan” effect

While there are several strong theoretical reasons to observe the “black swan” effect on cryptocurrency herding, our results suggest that COVID-19 did not amplify herding in cryptocurrency markets. In all markets studied, herding remains contingent on up or down markets days, but does not get stronger during the COVID-19. These results are important for cryptocurrency investors and regulators to enhance their understanding of cryptocurrency markets and the financial effects of the COVID-19 pandemic.

Analysing stock market performance of 43 firms across 6 industries that gained disproportionately during the pandemic – work-from-home companies, stay-at-home companies, Cryptocurrency companies, Bitcoin companies, Coronavirus Vaccine companies and Coronavirus therapeutics companies for the period 21/11/2019 – 20/1/2021, we  demonstrate the presence of bubbles and persistence patterns.

In the digital assets’ ecosystem, gold-backed cryptocurrencies have the potential to address regulatory and policy concerns by decreasing volatility of cryptocurrency prices and facilitating broader cryptocurrency adoption. We find that during the COVID-19 pandemic, gold-backed cryptocurrencies were susceptible to volatility transmitted from gold markets. Our results indicate that for the selected gold-backed cryptocurrencies, the volatility and consequently, risks associated with volatility, remained comparable to the Bitcoin. In addition, gold-backed cryptocurrencies did not show safe-haven potential comparable to their underlying precious metal, gold. These results are useful to policy makers since they provide evidence of the potential pitfalls of this innovation which failed to perform as a safe haven in times of high and unprecedented uncertainty (the COVID-19 crisis). Our results put to question the role of this new class of assets and call for a rethinking in terms of design if desired objectives of easy access to gold and reduced volatility are to be met.

Analysing elasticity

Despite the importance of elasticity in financial economics, that for the crypto sector remains in its infancy. Analysing elasticity, we find that while both BTC and ETH have significantly positive price elasticities, transaction fee elasticity is negative and positive for BTC and ETH respectively, indicating differences in potential uses for these cryptocurrencies. Given that elasticity of inflow volumes represents the sensitivity of moving coins to exchange wallets from wallets outside exchanges, we can interpret it as increased selling pressure due to upward shocks in the selected factors. In terms of transaction fee, on average, the accumulated transaction fee elasticity remains negative for BTC and positive for ETH, indicating negative and positive selling pressure for BTC and ETH, respectively.  Rising energy costs, in general cause a negative selling pressure for BTC and a positive one for ETH. Elasticity of outflows demonstrate moving coins after purchases, implying potentially bullish sentiments. Naturally, a positive price shock in BTC and ETH results in increased outflow.  Fee elasticity of outflow (bullish sentiments) is negative for BTC and positive for ETH, indicating the differences in the transaction fee mechanisms of the selected cryptos. Elasticity of inter-exchange volumes can be explained by arbitrage strategies as investors move their cryptocurrency holdings across exchanges to benefit from mispricing.

In terms of the recent several serious crises in the last years, the most contemporary being the collapse of Terra and then FTX. Despite common belief that these could imply the end of the crypto era, our analysis highlights no significant increases and decreases in systemic risk and liquidity, respectively.

And finally, we find that societal trust and cultural values affect interest in cryptocurrencies and their adoption. Specifically, our results indicate a negative and statistically significant effect of mistrust on interest in cryptocurrencies. Similarly, we find a negative and statistically significant effect of mistrust on cryptocurrency adoption. In terms of cultural dimensions, uncertainty avoidance has a positive and statistically significant effect on interest in cryptocurrency and its adoption, indicating that contrary to popular belief about investor rationality and risk aversion, uncertainty and ambiguity increase the interest in cryptocurrencies and their adoption. On the other hand, the Long-term orientation versus short term normative orientation index estimates remain negative and statistically significant across all models, indicating the role of ‘impulse’ and myopic vision in cryptocurrency investing.

References to the research

Jalan, A., Matkovskyy, R., Poti, V., Siddique, S. (2023) “Stablecoins: Funding and Market Liquidity”, Available at SSRN: https://ssrn.com/abstract=4562256
Jalan, A., Matkovskyy, R., (2023) “Systemic risks in the cryptocurrency market: Evidence from the FTX collapse”. Finance Research Letters, 53, 103670
Jalan, A., Matkovskyy, R., Yarovaya, L., Urquhart, A.  (2023) “The role of interpersonal trust in cryptocurrency adoption”. Journal of International Financial Markets, Institutions and Money, Volume 83 (March 2023), 101715
Jalan, A., Matkovskyy, R., Urquhart, A.  (2022) “Demand elasticities of Bitcoin and Ethereum”. Economics Letters, 220, 110877.
Jalan, A., Matkovskyy, R., and Poti, V. (2022). “Shall the winning last? A study of recent bubbles and persistence.” Finance Research Letters 45, 102162.
Jalan, A., Matkovskyy, R., and Yarovaya, L. (2021). “Shiny crypto assets: A systemic look at gold-backed cryptocurrencies during the COVID-19 pandemic.” International Review of Financial Analysis 78, 101958.
Yarovaya, L., Matkovskyy, R., and Jalan, A. (2022). “The COVID-19 black swan crisis: Reaction and recovery of various financial markets.” Research in International Business and Finance 59, 101521.
Yarovaya, L., Matkovskyy, R., Jalan, A. (2021). “The effects of a “black swan” event (COVID-19) on herding behavior in cryptocurrency markets”. Journal of International Financial Markets, Institutions and Money, 75, 101321.
Jalan, A., Matkovskyy, R. and Urquhart, A. (2021). “What effect did the introduction of Bitcoin futures have on the Bitcoin spot market?” The European Journal of Finance, 27(13), 1251-1281.
Matkovskyy, R., Jalan, A. (2021). “Can Bitcoin be an inflation hedge? Evidence from a quantile-on-quantile model.” Revue Économique, 7, 1024-1041.

Details of the impact

Despite cryptocurrencies’ high returns, the skepticism surrounding this asset class remains unabated. While proponents argue that cryptocurrency is the most efficient medium for asset transfer, an effective diversifier and hedge, conservatives reason that cryptocurrencies possess no real value and facilitate illegal activities such as asset transfers on the dark-web. Despite all its pitfalls, statistically significant diversification benefits from the inclusion of Bitcoin have been documented in literature, which are much more pronounced for commodities. Therefore, the implications of our results are multidimensional. These results are important for cryptocurrency investors and regulators to enhance their understanding of cryptocurrency markets. It is important also because of the age dynamic in this market, namely the growing interest of the youth in cryptos and associated risks.
These results about the crypto currency market with its various facets should be widely disseminated for higher impact by different user groups.

Evidence of impact

One of our research papers was presented and discussed at the research seminar at the Office of Comptroller of the Currency, the US government: Jalan, A., Matkovskyy, R., Poti, V., Siddique, S. (2023) Stablecoins: Market Liquidity, Funding Liquidity and Drivers, February 2023.

Additionally, the results of research were disseminated outside of academia in several countries – France, Italy, Germany, Switzerland and UK to cover different categories of population that might benefit from information about and demystification of crypto-assets. The choice of these outlets serves as a testimony of wide dissemination. For instance, www.mondedesgrandesecoles.fr, the website that targets students of French Grand Ecoles, business communities (e.g., www.businesscommunity.it, www.handelszeitung.ch, etc.), investment sites (e.g., Global Investors, www.bondguide.de etc.), general economic and finance news (e.g., www.raconteur.net, currency.com, lindro.it, www.thenationalnews.com etc.) and for researchers and professionals in finance (www.springerprofessional.de).

Sources to corroborate the impact


  1. Placer son argent en Bourse exige du temps, l’effort est moindre quand on veut investir dans les “cryptos”, Le Monde,  https://www.lemonde.fr/idees/article/2023/06/07/placer-son-argent-en-bourse-exige-du-temps-l-effort-est-moindre-quand-on-veut-investir-dans-les-cryptos_6176499_3232.html June 2023(Akanksha JALAN and Roman MATKOVSKYY)
  2. Jeunes et crypto-monnaies = risques élevés ?, Monde des Grandes Ecoles, https://www.mondedesgrandesecoles.fr/jeunes-et-crypto-monnaies-risques-eleves/ , 8/09/2022 (Roman MATKOVSKYY & Akanksha JALAN)
  3. The pros and cons of taking payments in cryptocurrency – Raconteur. 09/02/2023 https://www.raconteur.net/technology/pros-and-cons-of-taking-payments-in-cryptocurrency/ (Roman MATKOVSKYY)
  4. Que devons-nous nous attendre des crypto-monnaies et de la blockchain en 2022? MoneyController,https://www.moneycontroller.fr/forum-financier/entreprises/cryptocurrencies-blockchain-prospects-2022-5745 14.12.2021 (Roman MATKOVSKYY)


  1. Le Criptovalute possono dare dipendenza, 28/11/2022, https://www.doveinvestire.com/criptovalute/criptovalute-possono-dare-dipendenza/  (Roman MATKOVSKYY & Akanksha JALAN)
  2. Criptovalute: cosa aspettarsi per il 2022, https://www.businesscommunity.it/m/20220209/economia/criptovalute-cosa-aspettarsi-per-il-2022.php , 9.02.2022 (Roman MATKOVSKYY)
  3. Quale futuro per le criptovalute? Business Community https://www.businesscommunity.it/m/20210623/economia/quale-futuro-per-le-criptovalute.php , 23.06.2021 (Roman MATKOVSKYY)
  4. Dopo la tempesta, quale futuro per le criptovalute? https://lindro.it/author/roman-matkovskyy/ , 10.06.2021 (Roman MATKOVSKYY)


  1. Kryptowährungen zu riskant für junge Menschen? Finanz nachrichten, https://www.finanznachrichten.de/nachrichten-2022-11/57508209-kryptowaehrungen-zu-riskant-fuer-junge-menschen-144.htm , 7/11/2022 (Roman MATKOVSKYY & Akanksha JALAN)
  2. Kryptowährungen zu riskant für junge Menschen?, BondGuide, https://www.bondguide.de/topnews/kryptowaehrungen-zu-riskant-fuer-junge-menschen/ , 7/1/2022 (Roman MATKOVSKYY)
  3. Kryptowerte erfahren in Partnerschaften Auftrieb, Springer Professional, https://www.springerprofessional.de/kryptowaehrungen/bitcoin/kryptowerte-erfahren-in-partnerschaften-auftrieb/20295396, 11.04.2022 (Roman MATKOVSKYY)
  4. Bitcoin, Ether und Co.: Der Krypto-Markt wächst weiter – aber anders als zuvor – Handelsblatt, https://www.handelsblatt.com/finanzen/maerkte/devisen-rohstoffe/serie-anlegen-2022-teil-8-kryptowaehrungen-bitcoin-ether-und-co-der-krypto-markt-waechst-weiter-aber-anders-als-zuvor/27919394.html, 29.12.2021 (Roman MATKOVSKYY)
  5. Bitcoin bleibt wichtigste Kryptowährung, Springer Professional, https://www.springerprofessional.de/kryptowaehrungen/bitcoin/bitcoin-bleibt-wichtigste-kryptowaehrung/19957160 , 20.12.2021 (Roman MATKOVSKYY)

Period when the impact occurred: 2021-2023
Research Centre: FMCO
Dr. Akanksha Jalan, Associate professor, Rennes School of Business
Dr. Roman Matkovskyy, Associate professor, Rennes School of Business