Investigating the relationship among selected cryptocurrencies and investment instruments in Turkey

Technologic advancements have made it possible to make payment and money transfers in digital settings more quickly and easily. At this moment, block chain technology has arisen as a novel technology that permits the safe storage and movement of digital assets, such as cryptocurrency. Bitcoin, a product of blockchain technology, was described only as a peer to peer decentralized payment tool when it was first released. However, over time, it has evolved into an alternative investment tool for investors in the financial markets. While Bitcoin gained an important position in the financial market, new crypto units have emerged and the cryptocurrency market has gained a significant share in the financial system. Since introduction of cryptocurrencies, their popularity have grown significantly and they become among the popular assets in portfolio diversification. In this context, investigating the relationships among different investment tools and cryptocurrencies has become crucial. Aim of this study is to investigate the long-term relationships between the dollar exchange rate (TRY/USD), gold (GAU/USD), the BIST 100 index, and the prices of Bitcoin (BTC/USD), Ethereum (ETH/USD), and Binance Coin (BNB/USD). We use weekly data and sample period spans from from January 19, 2018 to March 11, 2022. Since series include structural breaks, we employ Fourier function unit root tests to model structural breaks. Fourier Shin (FSHIN) cointegration tests developed by Tsong et al. (2016) and Shin (1994) (SHIN) were both used to analyze long-term relationships between variables. Findings of the cointegration analysis suggest that cryptocurrencies used in the study (LNBNB, LNBTC, LNETH) are cointegrated under structural breaks. Similarly, we find that other investment instruments (LNBIST, LNDOLAR, LNGAU) seem to be cointegrated. However, findings do not indicate cointegration relationship between cryptocurrencies and other investment instruments. As a result, we conclude that cryptocurrencies and other investment instruments do not move together in the long run. Keywords: Cryptocurrency, dollar exchange rate, gold, BIST 100, Fourier unit root test, Fourier cointegration test.