Cryptocurrencies and Macroeconomic Activity

The explosive growth of peer-to-peer exchanges and the Blockchain technology has spurred the emergence of cryptocurrencies as a significant component of financial markets. At the time of writing, there are about a thousand actively quoted cryptocurrencies. Despite the increasing attention, the question of what drives cryptocurrency prices is still largely unanswered.

Our research, which studies the trading patterns of the top 300 cryptocurrencies, shows that prices and volumes are mostly driven by past returns, while little to no evidence is found in terms of correlation between cryptocurrency trading volume and macroeconomic activity worldwide.

More specifically, the main results of the study show that, except for a mild correlation with the returns on precious metals, there is no significant relationship between returns on cryptocurrencies and global proxies of traditional asset classes. These results are consistent with the conventional wisdom that cryptocurrencies may be useful for diversification purposes, as they are uncorrelated with other asset classes. However, they cannot be thought of as a traditional asset class as well. In addition, the empirical analysis also demonstrates that there are no spill-over effects between cryptocurrencies and standard asset classes, that is, there is no correlation as far as realised volatility measures are concerned.

Delving further into the dynamics of market activity, the empirical results provide evidence that trading volume is influenced by past returns and volatility. On the other hand, macroeconomic variables such as shocks to inflation expectations, interest rates as well as aggregate market risk aversion (proxied by the VIX index) do not influence short-term trading activity in cryptocurrency markets. These results are consistent with existing empirical evidence on equity markets that shows a positive and significant correlation between stock returns and trading volume.

As a whole, the paper shows that macroeconomic activity on a global scale does not seem to influence the dynamics of cryptocurrency prices and volume, at least in the short term. Things may be different on a longer-term basis whereby macroeconomic fundamentals, aggregate risk attitudes and global imbalances may well influence trading activity in cryptocurrency markets.


The full paper can be found here.


Aaro Capital is the trading name of Aaro Capital Limited (“Aaro”), a private limited company, registered in England and Wales with number 11419585, whose registered office is at 62 Wilson Street, London, United Kingdom, EC2A 2BU. Aaro is not authorised or regulated by the Financial Conduct Authority ("FCA")

The material provided in this article is being provided for general informational purposes. Aaro Capital Limited does not provide, and does not hold itself out as providing, investment advice and the information provided in this article should not be relied upon or form the basis of any investment decision nor for the potential suitability of any particular investment. The figures shown in this article refer to the past or are provided as examples only. Past performance is not reliable indicator of future results.

This article may contain information about cryptoassets. Cryptoassets are at a developmental stage and anyone thinking about investing into these types of assets should be cautious and take appropriate advice in relation to the risks associated with these assets including (without limitation) volatility, total capital loss, and lack of regulation over certain market participants. While the directors of Aaro Capital Limited have used their reasonable endeavours to ensure the accuracy of the information contained in this article, neither Aaro Capital Limited nor its directors give any warranty or guarantee as to the accuracy and completeness of such information.

Please be sure to consult your own appropriately qualified financial advisor when making decisions regarding your own investments.