Abstract
This study investigates the lead-lag relationships and volatility dynamics among four major cryptocurrencies –
Bitcoin, Ethereum, Solana, and Polygon – during the turbulent year of 2022. We address three primary research
questions: (1) To what extent do lead-lag relationships exist among major cryptocurrencies, and how do they
challenge or support the notion of market efficiency in the crypto space? (2) How do volatility change points
in different cryptocurrencies relate to each other and to major market events? (3) How can the identification
of lead‑lag relationships and volatility change points inform cryptocurrency investment strategies and risk
management practices?
Using a continuous-time lead-lag estimator and a non-parametric volatility change point detection method,
we analysed daily price data for the year 2022. Our findings reveal complex lead-lag dynamics, with Polygon
unexpectedly emerging as a leading indicator despite its smaller market capitalisation. This challenges the
conventional assumption that larger cryptocurrencies like Bitcoin consistently lead market movements, indicating
potential inefficiencies in information transmission within the crypto market.
The volatility change point analysis identifies varying frequencies of volatility shifts across the cryptocurrencies,
with Polygon experiencing the most frequent changes (7) and Bitcoin the least (3). We observe both clustering of
volatility change points around significant market events and variations reflecting the unique characteristics
of each cryptocurrency.
Our results suggest that while the cryptocurrency market shows a high degree of interconnectedness, it also
exhibits nuanced dynamics that could be exploited for more effective hedging strategies and improved risk
assessment. The study highlights the rapid evolution of the cryptocurrency ecosystem, where technological factors
and market-specific events can significantly influence price dynamics and volatility patterns.