Green Cryptocurrencies Found to Amplify Market Volatility

Green cryptocurrencies like Cardano and Stellar are not safe hedges as commonly assumed, but rather major sources of market volatility. Researchers at Pusan National University in South Korea found this to be true after examining seven green cryptocurrencies alongside three benchmarks: the S&P Green Bond Index, the S&P Global Clean Energy Index, and the S&P ESG Leaders Index. The study used daily data from November 2017 to July 2024, a period that includes the COVID-19 pandemic.

The researchers applied a quantile vector autoregression model to track how markets interact during downturns, calm periods, and rallies. They found connectedness between green assets followed a U-shaped pattern: moderate during stable periods, then rising sharply during both sharp downturns and strong rallies. This indicates that diversification benefits weakened during times of stress.

Cardano and Stellar emerged as the most consistent transmitters of volatility across the assets studied. Green bonds, clean energy indices, and ESG investments, by contrast, mostly absorbed shocks generated elsewhere rather than generating them. The findings suggest that green bonds and ESG funds can still be exposed to shocks from cryptocurrency markets, particularly during periods of stress.