Cryptocurrencies Affect One Another, but not Other Asset Classes

A sharp fall in the value of Bitcoin may cause other cryptocurrencies to crash, but is unlikely to have a significant impact on traditional assets, according to new research published in the journal Economics Letters.

Researchers from Anglia Ruskin University, Dublin City University and Trinity College Dublin examined the performance of three established cryptocurrencies - Bitcoin, Litecoin and Ripple - and analysed their relationship with a variety of other financial assets such as gold, bonds and stocks.

The study found that Bitcoin prices affect Ripple, with a spillover of 28.37%, and Litecoin (42.3%), while the highest spillover from a cryptocurrency to a "traditional" asset was Bitcoin to Forex (FX), at 15.25%. In reverse, the highest price spillover from traditional assets to a cryptocurrency - Forex (FX) to Bitcoin - is only 4.18%.

The study also found that the volatility of cryptocurrencies is significantly higher than that of other assets, and that Ripple and Litecoin have limited influence on Bitcoin, proving that Bitcoin is the clear leader in the cryptocurrency market. The research also suggests that Ripple and Litecoin have seen their values increased thanks to the rapid growth of Bitcoin.

Co-author Dr Larisa Yarovaya, Lecturer in Accounting and Finance at Anglia Ruskin University, said: "We identified that cryptocurrencies are relatively isolated from other financial assets, but are interlinked with each other.

"This means a decrease in the price of Bitcoin is unlikely to decrease the price of gold, or negatively affect the stock market of US, but the strong links between Bitcoin and other cryptocurrencies mean that those markets will fall.

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CheapAir now Accepting AltCoins Like LiteCoin and DogeCoin

Last November CheapAir became the first airline to accept Bitcoin and then later, the first to let travelers book hotel rooms and Amtrak train seats with the digital currency.

Since then its Bitcoin sales have topped $1.5 million, an amount that exceeded the company’s initial expectations, Jeff Klee, CEO of CheapAir, tells Forbes.com.

CheapAir is hardly alone. In the last twelve months or so, Bitcoin has inched and then pushed its way into mainstream commerce, prompting such companies as Dell , Overstock, Expedia EXPE -0.54% and Dish Network to start accepting the currency. Dish, in fact, processed its first Bitcoin payment last month when Austin and Beccy Craig, the stars of a new documentary film “Life on Bitcoin,” used it to pay their monthly cable bill. Ebay may soon join that list, according to a report in the Wall Street Journal last month: it has been quietly to integrate the virtual currency into its Braintree payments subsidiary, sources told the WSJ.

CheapAir, though, is leaving all these companies in the dust and moving into new territory – at least for a mainstream brand – by accepting payments in Litecoin and Dogecoin. It will process the payments via GoCoin.

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States Besides New York Deciding on how to Regulate Bitcoin, Other Cryptocurrencies

Now that consumers can use digital currencies like bitcoin to buy rugs from Overstock.com, pay for Peruvian pork sandwiches from a food truck in Washington, D.C. and even make donations to political action committees, states are beginning to explore how to regulate the emerging industry.

Digital currencies — also known as virtual currencies or cash for the Internet —allow people to transfer value over the Internet, but are not legal tender. Because they don’t require third-party intermediaries such as credit card companies or PayPal, merchants and consumers can avoid the fees typically associated with traditional payment systems.

Advocates of virtual currencies also say that because personal information is not tied to transactions, digital currencies are less prone to identity theft.

With about $7.8 billion in circulation, bitcoin is the most widely used digital currency; others include Litecoin and Peercoin. All are examples of cryptocurrencies, a subset of digital currencies that rely on cryptography to function.

Many of the headlines generated by bitcoin and other digital currencies to date have focused on problems with the system. In January, for example, federal prosecutors charged the chief executive officer of BitInstant, a major bitcoin exchange company, with laundering digital currency through Silk Road, an online drug marketplace. Mt. Gox, based in Tokyo and once the largest bitcoin exchange in the world, stopped trading in February and filed for bankruptcy protection, saying it had lost half a billion dollars in virtual money.

Although digital currencies are far from widespread in their acceptance, their growing popularity — and potential for misuse — has prompted states to weigh in on what was previously uncharted territory.

“As far as we know, most state laws are completely silent on this topic,” said David J. Cotney, chairman of the Conference of State Bank Supervisors’ Emerging Payments Task Force, which in March began exploring virtual currency.

Among the questions the task force will consider, Cotney said, is whether bitcoins should be classified as currencies, investment securities or commodities, which could determine which regulators should apply.

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