Financial bubbles: Cryptocurrency Influence on the Shape of Capital Markets and Possible Consequences

This paper analyses the rapidly growing market of cryptocurrency that gave rise to an alternative method of fund raising to estimate possible consequences in case of rapid decrease in price of issued cryptocurrency assets (tokens) projected on the capital markets. The foregoing research will concentrate on the US stock market and appeal to market trading volume and volatility indices. The paper examining the fact of bubble presence and tries to estimate the traditional market investors’ behavior during negative shock in prices of cryptocurrency. For that purpose, I use vector autoregression (variance decomposition and impulse response) analysis. The list of instruments includes Granger causality test to determine cross-correlations and identify endogenous variables, ADF (augmented DickeyFuller) test for stationarity of time series, multiple information criteria to set the correct lag coefficient and LPPL to test for bubble presence. Findings are based on statistical methods, empirical evidence, and behavioral finance intuition.