Abstract
This study explores the new insights into the integration and dynamic asymmetric volatility
risk spillovers between Bitcoin, currency pairs (USD/ZAR, GBP/ZAR and EUR/ZAR),
and traditional financial assets (ALSI, Bond, and Gold) in South Africa using daily data
spanning the period from 2010 to 2024 and employing Time-Varying Parameter Vector
Autoregression (TVP-VAR) and wavelet coherence. The findings revealed strengthened
integration between traditional financial assets and currency pairs, as well as weak integration
with BTC/ZAR. Furthermore, BTC/ZAR and traditional financial assets were
receivers of shocks, while the currency pairs were transmitters of spillovers. Gold emerged
as an attractive investment during periods of inflation or currency devaluation. However,
the assets have a total connectedness index of 28.37%, offering a reduced systemic risk.
Distinct patterns were observed in the short, medium, and long term in time scales and
frequency. There is a diversification benefit and potential hedging strategies due to gold’s
negative influence on BTC/ZAR. Bitcoin’s high volatility and lack of regulatory oversight
continue to be deterrents for institutional investors. This study lays a solid foundation
for understanding the financial dynamics in South Africa, offering valuable insights for
investors and policymakers interested in the intricate linkages between BTC/ZAR, currency
pairs, and traditional financial assets, allowing for more targeted policy measures.