ANALYSIS OF COINTEGRATION OF CRYPTOCURRENCIES WITH THE DOW-JONES INDEX

Abstract

This study presents an extensive analysis of the cointegration between cryptocurrencies and stocks, examining 12,028 cryptocurrency-stock pairs to uncover long-term equilibrium relationships. We find that 54.76% of the analyzed pairs demonstrate significant cointegration at the 95% confidence level, indicating a higher degree of integration between these markets than previously reported. Our analysis categorizes cryptocurrencies into distinct groups and examines their cointegration with stocks separately, revealing varying levels of integration across different cryptocurrency types.
Metaverse tokens show the highest level of cointegration with stocks (100%), followed by NFT/Gaming tokens (63.68%) and payment tokens (63.64%). Stablecoins, contrary to expectations, demonstrate strong cointegration with certain stocks. We also conduct a sector-specific analysis, finding that the entertainment sector shows the highest degree of cointegration with cryptocurrencies (approaching 80%), while the telecommunications sector shows the lowest (just over 40%).
The strength of cointegration, measured by t-statistics, varies significantly between different cryptocurrency-stock pairs. Notable strong cointegrations are observed between specific cryptocurrencies like Ellipsis and major stocks such as Walt Disney, Amazon, and Salesforce.
Our findings suggest that the integration between cryptocurrencies and traditional financial markets has increased over time, challenging earlier notions of cryptocurrencies as isolated assets. This study contributes to a deeper understanding of cross-market dynamics, offering new perspectives on market integration, diversification benefits, and the evolving nature of the global financial ecosystem. The results have significant implications for portfolio management, risk assessment, and regulatory frameworks in an increasingly digitized financial landscape.