Abstract
Cryptocurrencies are subject to thorough examination and discourse by numerous media outlets, venture capitalists, financial institutions, banking organizations, market stakeholders, and political entities worldwide. Cryptocurrencies are currently emerging as a new investment class, and this presents an opportunity to explore historically revealed properties of cryptocurrencies. Consumers or investors may use online wallets to buy, store, and trade cryptocurrencies. Cryptocurrencies are not regulated by any government or bank and are designed to replace fiat money. The cryptocurrency market is highly volatile due to its emergent stage. Understanding the dynamics of cryptocurrency “market volatility” is crucial for investors and formulating investment strategies. Volatility is essentially attached to risk and return; as volatility rises, the cryptocurrency market faces greater instability. The volatility inherent in the Bitcoin and Litecoin market is analyzed through a daily return series comprising 3865 observations from January 2014 to July 2024. This study uses symmetric and asymmetric “Generalized Autoregressive Conditional Heteroskedasticity (GARCH)” models to evaluate Bitcoin and Litecoin returns and volatility. The study found a positive “risk premium” in both markets, supporting the hypothesis that volatility correlates with predicted returns. Furthermore, our findings suggest that cryptocurrency return has a “leverage effect,” and the effect of news (information) is asymmetric. Negative news has a larger influence on volatility than positive news in Bitcoin returns and has an effect of the same magnitude in Litecoin returns.
Keywords: Bitcoin, Cryptocurrency, GARCH, Litecoin, Return, Volatility