Multiscale characteristics of the emerging global cryptocurrency market

• Published in: Physics reports 2021-03, Vol.901, p.1-82
• Main Authors: Wątorek, Marcin, Drożdż, Stanisław, Kwapień, Jarosław, Minati, Ludovico, Oświęcimka, Paweł, Stanuszek, Marek
• Format: Article
• Language: English
• Subjects: Complex networks; Complexity measures; Cross-correlations; Cryptocurrencies; Fractals; Lead–lag effect; Multiscaling
• ISSN: 0370-1573; 1873-6270
• DOI: 10.1016/j.physrep.2020.10.005

Modern financial markets are characterized by a rapid flow of information, a vast number of participants having diversified investment horizons, and multiple feedback mechanisms, which collectively lead to the emergence of complex phenomena, for example speculative bubbles or crashes. As such, they are considered as one of the most complex systems known. Numerous studies have illuminated stylized facts, also called complexity characteristics, which are observed across the vast majority of financial markets. These include the so-called “fat tails” of the returns distribution, volatility clustering, the “long memory”, strong stochasticity alongside non-linear correlations, persistence, and the effects resembling fractality and even multifractality. The striking development of the cryptocurrency market over the last few years – from being entirely peripheral to capitalizing at the level of an intermediate-size stock exchange – provides a unique opportunity to observe its evolution in a short period. The availability of high-frequency data allows conducting advanced statistical analysis of fluctuations on cryptocurrency exchanges right from their birth up to the present day. This opens a window that allows quantifying the evolutionary changes in the complexity characteristics which accompany market emergence and maturation. The purpose of the present review, then, is to examine the properties of the cryptocurrency market and the associated phenomena. The aim is to clarify to what extent, after such an impetuous development, the characteristics of the complexity of exchange rates on the cryptocurrency market have become similar to traditional and mature markets, such as stocks, bonds, commodities or currencies. The review introduces the history of cryptocurrencies, offering a description of the blockchain technology behind them. Differences between cryptocurrencies and the exchanges on which they are traded have been consistently shown. The central part of the review surveys the analysis of cryptocurrency price changes on various platforms. The statistical properties of the fluctuations in the cryptocurrency market have been compared to the traditional markets. With the help of the latest statistical physics methods, namely, the multifractal cross-correlation analysis and the q-dependent detrended cross-correlation coefficient, the non-linear correlations and multiscale characteristics of the cryptocurrency market are analyzed. In the last part of this paper, t