Abstract
This study examines the volatility connectedness of native cryptocurrencies, stablecoins and fiat currencies in emerging markets by making use of daily data from 01 January 2020 to 31 December 2024. To this end, the study uses a TVP-VAR based frequency connectedness of Chatziantoniou, Gabauer and Gupta (2021). It further evaluated the influence of geopolitical risk, the US dollar strength and market fear on systemic risk and how this relationship varies across different regimes, and this is achieved through a quantile regression. The study also identifies the most influential asset in the system in the short, medium and long term, by employing network topology. The findings of the study reveal that the volatility connectedness between native cryptocurrencies, stablecoins and fiat currencies vary depending on different market conditions, indicating that the benefits of investing are influenced by the timeframe chosen. In the short and medium term, total connectedness among the assets is low, indicating that volatility shocks are market specific. This connectedness increases in the long term, indicating that markets tend to integrate more over time. The findings of the study further reveal Bitcoin and USDZAR as dominant transmitters in the short and medium term, while Ethereum is identified as a primary receiver. In the long run, Ethereum and USDTRY become the most influential assets, transmitting shocks, while Bitcoin and USDZAR receive shocks. Among the stablecoins, PAXG and DAI emerge as strong transmitters in the long run, while USDT is a receiver. The quantile regression results reveal that the dollar strength, market fear and geopolitical risk intensify short term spillovers. Moreover, geopolitical risk only drives systemic risk at the 25th and 50th quantile, while the US dollar strength and the volatility index (market fear) drive system risk across all regimes in the medium term. In the long term, VIX is the only main driver of systemic risk. It is recommended that portfolio managers should come up with strategies that will adjust portfolios across frequency bands, to enhance portfolio resilience. They should further be cautious of stablecoins, as they may not all offer diversification benefits.