Abstract
Understanding the interconnectedness of cryptocurrencies based on their underlying technology is crucial for effective portfolio management and risk assessment. To establish the tail dependence structure and risk spillover between cryptocurrencies, this paper used the daily closing prices of the top eight proof-of-stake-based cryptocurrencies and the top ten proof-of-work-based cryptocurrencies from September 22, 2020 to April 7, 2023. This study applied the C-vine copulas and CoVaR measures. The outcome of the copula findings for the proof-of-stake cryptocurrencies illustrates that Ethereum exhibits strong resilience during market downturns, acting as a buffer for other proof-of-stake cryptocurrencies with pairwise tail dependence coefficients ranging from 0.45 to 0.67. Bitcoin Cash emerges as a portfolio diversifier within the proof-of-work ecosystem, absorbing 45% to 75% of volatility spillovers. However, from the proof-of-stake CoVaR analysis, ETH, DOT, and MATIC rank highest in systematic importance before April 2022, signifying their significant risk transmission role, and for the proof-of-work CoVaR analysis, Bitcoin (BTC) is the primary risk transmitter in the cryptocurrency portfolio, having a positive CoVaR of 0.15. Ethereum and Bitcoin are identified as the dominant risk transmitters within their respective groups, highlighting their potential to amplify systemic risk. This study provides valuable insights for investors and policymakers navigating the increasingly complex cryptocurrency landscape.