Uncertainty and Cryptocurrency Returns: A Lesson from Turbulent Times

This paper explores the interplay between economic uncertainty and cryptocurrency behaviour. Using data spanning from April 2018 to December 2022, we examine the relationship between ten major cryptocurrencies and a repertoire of uncertainty measures covering geopolitical events, economic policy, and commodity, equity, and bond markets. Cryptocurrency returns exhibit dynamic and positive correlation with stock market and oil volatility, but no significant association with other uncertainty proxies. In terms of volatility spillovers, the transmission from uncertainty indices to cryptocurrency markets is weak, but intensifies during turbulent periods such as the COVID-19 outbreak or the Ukraine war. Overall, while the pricing of cryptocurrencies remains largely disconnected from economic risks, there are doubts cast on their alleged ‘safe haven’ properties.