Universalities in the Dynamics of Cryptocurrencies: Stability, Scaling and Size

Cryptocurrencies represent an asset class featuring two unique properties: one, they are not backed by sovereigns and two, their supply is fixed exogenously. This combination becomes apparent in their volatility which is driven by the demand-side factors only. In particular, cryptocurrencies represent an extreme case of the excess volatility puzzle with asset prices moving more than the fundamentals. In this paper, we explore effects of market capitalization on dynamics of cryptocurrencies within both returns and volatility networks. Asso- ciatedly, we show that the cryptocurrencies exhibit scaling properties in volatility with respect to market capitalization. The dependency network suggests that currencies with larger market share have higher presence in the dominant eigenspectrum and they exert higher influ- ence in the comovement network. In these regards, we find parallels of the dynamics of cryptocurrencies with more traditional asset classes. Our findings have implications for both researchers and practitioners in terms of modeling and analyzing collective behavior of financial assets.