Are Bitcoin and Ether Affected by Strictly Anonymous Crypto-Currencies? An Exploratory Study
Are Bitcoin and Ether Affected by Strictly Anonymous Crypto-Currencies? An Exploratory Study

Summary/Abstract: The majority of crypto-currencies are pseudo-anonymous in a sense that they are traceable through their hashes. Very few crypto-currencies really provide strict anonymity (i.e., un-linkability) for exchanges. This article investigates the link between strictly anonymous crypto-currencies (Moreno (XMR), Dash (DASH), Verge (XVG) and the dynamics of the two most important pseudo-anonymous crypto-currencies (Ether/Bitcoin) between 2015 and 2020. Our empirical analysis found a significant relationship between three of these anonymous crypto-currencies (XMR, DASH and XVG) and Bitcoin/Ether. Through an ARCH and GARCH-based econometric technique, we identify a structural break in all these crypto-currencies’ dynamics implying the need to study two distinct sub-periods (before/after 17 December 2017). Interestingly, the dynamics of these assets behave differently in the two identified regime. The conditional correlations between crypto-currencies are stronger after the structural break (during the decreasing market) than before (increasing trend). These results indicate that, before the structural breaks, anonymous crypto-currencies could have been considered as good assets for diversification purposes but their diversifying properties cannot be observed in decreasing markets (i.e., after the 17Dec 2017). Our study identifies DASH as a key crypto-currency since this digital asset could be involved in the dynamics of Bitcoin and Ether in our two periods of study.

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