Decoding the Dynamic Connectedness Between Traditional and Digital Assets Under Dynamic Economic Conditions

Abstract

This study examines the dynamic interconnectedness between digital and traditional assets, with an emphasis on fiat currencies (such as JPY/USD and CHF/USD), cryptocurrencies (such as Bitcoin), and digital assets backed by gold (such as Tether Gold and Digix Gold Token) under various economic conditions. The study uses sophisticated techniques, including dynamic connectedness, quantile connectedness, and time-frequency connectedness analyses, to test non-linear and asymmetric interactions between various asset classes. The findings reveal that while cryptocurrencies, especially Bitcoin, frequently serve as net recipients of shocks during times of economic instability, gold and gold-backed assets are the primary shock transmitters. These findings highlight the increasing importance that digital assets play amid economic and geopolitical crises as well as their growing incorporation into the larger financial ecosystem. The study contributes to the literature on asset interconnection and provides implications for systemic risk management and financial stability; specifically, it offers insightful information for hedging and portfolio diversification techniques.