To analyze shock transmission, shock absorption and systemic interconnectedness in decentralized cryptocurrency markets by examining how structural differences across cryptocurrency subcategories (green, energy and Bitcoin Gold) influence contagion dynamics and network resilience.
This study employs an R-squared decomposed connectedness approach to investigate contemporaneous and lagged spillovers among eight cryptocurrencies that have been classified as green (Cardano, XRP, Polygon and Stellar), energy-centric (Powerledger, Electrify Asia and Sun Contract) and Bitcoin Gold for the period ranging from December 31, 2019 to July 22, 2024. It evaluates directional shock transmission (“TO”), shock absorption (“FROM”) and net connectedness to identify the role of individual assets as transmitters and receivers within the network. Additionally, hedge ratios and portfolio weights are calculated to offer insights into diversification potential and hedging effectiveness across cryptocurrency subcategories.
The findings indicate a high degree of systemic interconnectedness among closely linked decentralized networks. Contemporaneous connectedness is more pronounced than lagged connectedness, indicating rapid information diffusion within cryptocurrency platforms. Network diffusion analysis identifies Stellar and Cardano as net transmitters (sneezers), and Sun Contract and Electrify Asia as net receivers (catchers), exhibiting systemic risk elevation and diversification capabilities, respectively.
This study contributes to Information Systems research by integrating digital contagion theory and a socio-technical perspective into the empirical analysis of cryptocurrency platforms. It introduces network-based decomposition of connectedness to differentiate between immediate and persistent contagion and offers one of the initial empirical analyses of heterogeneity across cryptocurrency subcategories. This study connects infrastructure design with contagion dynamics and provides innovative perspectives on governance-by-design, network resilience and systemic vulnerabilities in developing a digital ecosystem.
