Correlative Relationships Between Cryptoassets and Price Bubbles: Risk and Contagion Dynamics of Digital Markets

The development of cryptographic digital markets and the growing number of investors have generated concernsabout the formation of price bubbles. We can describe the formation of a price bubble as a manifestation of thepricing paradox, characterised by an increase in an asset's value beyond its intrinsic worth. Investor sensitivity andemotional responses, disequilibrium in supply and demand, speculation and irrational investor behaviour, excessivevolatility, and uncertainty nourish this paradoxical tendency. Examining balloon formations in these markets offersvaluable insights for educating investors about market cycles and risk management, which can aid policymakersin preserving market stability and protecting financial systems. The objective of this study, which examines thephenomenon of price bubbles in digital asset markets, is to ascertain whether these bubbles are unique to the digitalasset market or whether they have a broader economic origin. The objective is to identify, establish the stabilityof, and facilitate the prediction of price developments, with a particular focus on the potential for market crashes.The GSADF methodology examined 18 digital assets in total, including CCC, NFT, and DeFI, for price bubble formationin this context. The digital assets analysed in this study were selected based on their market representativeness,as evidenced by 200 weeks of observation data covering the period from October 5, 2020, to July 29, 2024. Theanalysis yielded two key findings: the existence of asset-specific and market-induced bubbles and the observationthat different markets exhibit common risk sensitivity. Additionally, the movements of highly liquid digital assets(BTC, etc.) may serve as an indicator of impending market crashes due to their high correlation with other markets.The current body of research on cryptoassets tends to focus on traditional assets and relationships between binaryor restricted asset groups, leaving this study poised to make a significant and comprehensive contribution to theexisting literature on this subject