Research On The Price Dynamic Correlation Of Cryptocurrency And Nasdaq Index

Cryptocurrency is a new form of currency based on blockchain technology and aimed at changing the fiat currency system.It has now developed into an undeniable global asset.As the most representative cryptocurrency,Bitcoin is known as "digital gold".However,in recent years,it has shown a resonance phenomenon with Nasdaq assets in terms of price,which contradicts its financial function as gold.This paper attempts to summarize the financial functions currently embodied by cryptocurrencies through empirical analysis of the dynamic relationship between cryptocurrency and Nasdaq market prices,and proposes corresponding suggestions for investors and regulators.Firstly,based on summarizing the development status of cryptocurrencies and describing their operating mechanisms,this paper puts forward three hypotheses about the correlation between three cryptocurrencies and Nasdaq index.The three hypotheses are: H1: The cryptocurrency market risk is higher than that of the traditional Nasdaq market,but as the market matures,the overall risk of the cryptocurrency market will decrease;H2: With the development of the cryptocurrency market,the correlation between cryptocurrencies and Nasdaq index will increase;H3: With the increase in correlation between Bitcoin and Nasdaq market,Bitcoin no longer has the financial function of "digital gold" for Nasdaq index.Secondly,this paper uses ARMA-GARCH and DCC-GARCH models to conduct empirical analysis on the price and price relationship between Bitcoin,Ethereum and Nasdaq index from August 7th 2015 to October 12 th 2022.The research results show that: firstly,cryptocurrency volatility and expected return are much higher than those of Nasdaq index.The former’s volatility shows a downward trend while that of latter shows an upward trend which proves hypothesis H1;secondly,since 2020,dynamic correlation coefficient between cryptocurrency and Nasdaq index has become significantly greater than zero with obvious inter-market volatility spillover effect which proves hypothesis H2;thirdly,after 2020,cryptocurrency is priced as a risky asset without the function of hedging,safe haven and diversification which proves hypothesis H3.Furthermore,this paper attempts to explore the reasons for the increased correlation between cryptocurrency and Nasdaq index.The results show that the main reason is the development of the cryptocurrency market,which is related to the expansion of the cryptocurrency market size,government tolerance regulation,mainstream investment institutions’ participation,and stablecoins acting as a bridge between the two markets,all of which have jointly promoted the connection between the two markets.Finally,based on the research conclusions,this paper proposes corresponding investment and regulatory suggestions for investors and regulators respectively.Specifically,investors need to timely change their investment ideas,do well in risk management,and avoid blind hoarding of coins or gambling contracts.Meanwhile,governments should maintain cautious regulation to prevent capital outflows while protecting investors’ legitimate rights and interests.