The Dynamics of Connectivity between Traditional Cryptocurrencies and NFTs: Validation of the Connectivity Model by Quantiles and Frequencies
Purpose: This paper pioneers exploring the relationship between cryptocurrencies, considering the case of non-fungible tokens (NFTs) and traditional cryptocurrencies Design/Methodology/Approach: The analysis is performed through an innovative TVP-VAR frequency connectedness approach, revealing a substantial level of dynamic integration and return transmission among cryptocurrencies systems. Findings: Our findings are multifaceted. Firstly, that there is higher total connectedness in the bearish and bullish market conditions compared to normal conditions. Secondly, the degree of connectedness is even stronger during tranquil and turbulent times such as the Covid-19 pandemic and the Russian-Ukrainian war. Thirdly, the network's net transmission behavior is predominantly by the short-term dynamics for NFT and by the long-term dynamics for Conventional cryptocurrencies, and assets' roles as net-transmitter and net-receiver can change over time. Practical Implications: These findings inform investors, traders, and portfolio managers to prioritize risk management during high-risk periods, such as COVID-19 and the Russian-Ukrainian conflict, as crises involve non-diversifiable systematic risks, demanding careful risk mitigation. Originality/Value: One of the main challenges of cryptocurrencies is determining the nature of the dynamics of their connectivity. The originality and the value of this research is to investigate whether cryptocurrencies evolve in a similar manner to each other.