Asymmetric relationship of cryptocurrency with gold, dollar index, VIX and oil prices: Evidence from quantille-on-quantille regression

Money, which started with the barter system and evolved into cryptocurrencies with technological developments today, has been an indicator reflecting the power of both individuals and countries and an important investment tool throughout history. However, cryptocurrencies that have emerged in recent years show significant differences from the traditional definition of money. This thesis empirically examines the relationship between Bitcoin (BTC), a cryptocurrency, and gold, which is considered a safe-haven asset; the VIX index, which is seen as a fear index; the dollar index, which shows the global strength of the US dollar; the euro index; the US interest rate; and the oil market. The study applies quantile-on-quantile regression analysis using data for the period 2012M3-2024M11. The findings reveal that the relationships between variables are dynamic and conditional. A strong negative relationship is observed between the low and high quantiles of BTC and the low and high quantiles of gold, while a strong positive relationship is observed between the high quantiles of gold and the low quantiles of BTC. This suggests that BTC reacts differently to gold depending on market conditions. There is a generally negative relationship between the dollar index and BTC, but there is a positive relationship between the high quantiles of the dollar index and the mid-quantiles of BTC. Similarly, there is a similar relationship between the euro and BTC. There is only a positive relationship between the low quantile of BTC and almost all quantiles of the euro. While there is a positive relationship between the VIX Index and the mid-quantile value of BTC and the high quantile values of VIX, this relationship turns strongly negative at high quantile values of BTC. This suggests that BTC offers high returns during periods of increased market volatility but can exhibit an inverse movement in very high volatility situations. Overall, a positive relationship was found between BTC and US interest rates. This indicates that increases in interest rates may positively affect the price of BTC. Finally, when the oil market is analysed, a negative relationship is generally observed with Brent oil, while there is a positive relationship with Dubai oil and a mixed relationship with WTI oil. This suggests that different segments of the oil market exhibit different dynamics with BTC. In the light of the findings, important recommendations can be made for policymakers and market regulators. BTC's complex and volatile relationship with traditional assets suggests that a uniform regulatory framework for cryptocurrency markets will not be sufficient. Regulations should be designed to be flexible according to market conditions (low, medium, or high volatility). Moreover, the potential impact of cryptocurrency markets on global financial stability needs to be continuously monitored.