ABSTRACT
Understanding the dynamics of cryptocurrency markets during financial crises such as the recent one caused by the COVID-19 pandemic is crucial for policy makers and investors. In this study, the effect of COVID-19 pandemic on the return-volatility and return-volume relationships for the ten most traded cryptocurrencies, namely Tether, Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash, EOS, Chainlink, Cardano, and Monero is examined. Further, the behavior of cryptocurrencies during COVID-19 pandemic is compared with less volatile markets such as Gold, WTI, and BRENT crude oil markets. To study the effect of volatility on cryptocurrency return, an EGARCH-M model is employed while for the return-volume relationships the VAR model and Granger causality tests are utilized. Results show that the return-volatility relationships for Tether, Ethereum, Ripple, Bitcoin Cash, EOS, and Monero are significant during COVID-19 pandemic, while the same relationship is not significant prior to the pandemic for any of the studied cryptocurrencies. Our findings of the return-volume relationship support the availability of causal relations from return to trading volume changes for Chainlink and Monero in the pre-COVID-19 period and for Ethereum, Ripple, Litecoin, EOS, and Cardano during the COVID-19 period. However, considering the absolute values of returns, we found a significant relationship from cryptocurrencies' absolute returns to trading volume changes for both the prior and during COVID-19 periods. From a managerial perspective, gold can be considered a suitable asset for portfolio hedging during the pandemic period and trading volume can help traders and investors identify the effect of momentum and potential trend in cryptocurrencies on their investments.