Publications

Effect of Bifurcation on the Interaction Between Bitcoin and Litecoin

ARTICLE | Finance Research Letters | Forthcoming

Abstract

This paper studied the effect of the bifurcation of Bitcoin on its interactions with its substitute, Litecoin. We applied the Granger causality test and a BEKK-MGARCH model to investigate the return and volatility spillovers between Bitcoin and Litecoin during the period 2013–2018. We divided this period by the date of August 1, 2017, on which Bitcoin underwent its initial bifurcation. In general, our empirical results show that return and volatility spillovers run in one direction only, i.e., from Bitcoin to Litecoin, before the bifurcation, with the direction of shock transmission being reversed after the bifurcation. We conclude that bifurcation has markedly weakened the market position and pricing influence of Bitcoin within cryptocurrency markets. Since bifurcation is convenient for nearly any cryptocurrency, it will likely continue to pose a risk to the cryptocurrency market as a whole.