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An Introduction to Algorithmic Finance, Algorithmic Trading and Blockchain
Type: Book
ISBN: 978-1-78973-894-0

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Article
Publication date: 1 December 2020

Gary Low and Terence Tan

To address recent cases and the applicable legal principles relating to cryptocurrency, and to contribute to legal thought in this developing area of law.

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583

Abstract

Purpose

To address recent cases and the applicable legal principles relating to cryptocurrency, and to contribute to legal thought in this developing area of law.

Design/methodology/approach

This article considers recent cryptocurrency related cases in Singapore, Canada and the United Kingdom, and then considers the implications of the developing law in relation to proper causes of action and issues of practical asset recovery relating to the enforcement of judgments.

Findings

The intangible and highly movable nature of cryptocurrency places a premium on decisive asset recovery. The cases also suggest that injunctions remain a useful and effective debt recovery tool, especially when coupled with quick investigative action to trace cryptocurrency payments. However, the law remains unsettled as to the most appropriate cause of action for a claim in cryptocurrency or how a debt in cryptocurrency can be subject to execution. These issues raise the fundamental question of the nature of cryptocurrency, whether it belongs to an existing category of property, or if it is sui generis.

Practical implications

Cryptocurrency remains relatively novel and usage is increasing but not widespread. Users of cryptocurrency and lawyers involved in transactions or disputes involving cryptocurrency would benefit from a broader understanding of the legal issues

Originality/value

This article provides expert analysis from experienced litigation lawyers familiar with the concepts behind cryptocurrency.

Details

Journal of Investment Compliance, vol. 21 no. 2/3
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 2 July 2018

Vadim Avdeychik and Justin Capozzi

This paper aims to provide an overview of recent US Securities and Exchange Commission (SEC) Division of Investment Management staff (“Staff”) guidance related to…

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502

Abstract

Purpose

This paper aims to provide an overview of recent US Securities and Exchange Commission (SEC) Division of Investment Management staff (“Staff”) guidance related to investment funds registered under the Investment Company Act of 1940 that seeks to provide exposure to cryptocurrencies or cryptocurrency-related products.

Design/methodology/approach

This paper provides analysis regarding the Staff’s view on registered investment companies that intend to invest in cryptocurrencies or cryptocurrency-related products, including an overview of the questions posed by the Staff with respect to registered investment companies that seek to hold cryptocurrencies or cryptocurrency-related products, which are divided into five categories: valuation, liquidity, custody, arbitrage (for exchange-traded funds) and potential manipulation and other risks.

Findings

The Staff is asking for additional information from industry participants to fully analyze and evaluate registered investment companies that seek to invest in cryptocurrencies.

Practical implications

The industry should continue to provide information to the Staff with the short-term goal of fostering an open dialogue and with the long-term goal of launching a registered investment company that invests in cryptocurrencies or cryptocurrency-related products.

Originality/value

This paper provides practical guidance from experienced lawyers of the Investment Company Act and Securities Act.

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Article
Publication date: 27 September 2021

Thomas Dimpfl and Dalia Elshiaty

Cryptocurrency markets are notoriously noisy, but not all markets might behave in the exact same way. Therefore, the aim of this paper is to investigate which one of the…

Abstract

Purpose

Cryptocurrency markets are notoriously noisy, but not all markets might behave in the exact same way. Therefore, the aim of this paper is to investigate which one of the cryptocurrency markets contributes the most to the common volatility component inherent in the market.

Design/methodology/approach

The paper extracts each of the cryptocurrency's markets' latent volatility using a stochastic volatility model and, subsequently, models their dynamics in a fractionally cointegrated vector autoregressive model. The authors use the refinement of Lien and Shrestha (2009, J. Futures Mark) to come up with unique Hasbrouck (1995, J. Finance) information shares.

Findings

The authors’ findings indicate that Bitfinex is the leading market for Bitcoin and Ripple, while Bitstamp dominates for Ethereum and Litecoin. Based on the dominant market for each cryptocurrency, the authors find that the volatility of Bitcoin explains most of the volatility among the different cryptocurrencies.

Research limitations/implications

The authors’ findings are limited by the availability of the cryptocurrency data. Apart from Bitcoin, the data series for the other cryptocurrencies are not long enough to ensure the precision of the authors’ estimates.

Originality/value

To date, only price discovery in cryptocurrencies has been studied and identified. This paper extends the current literature into the realm of volatility discovery. In addition, the authors propose a discrete version for the evolution of a markets fundamental volatility, extending the work of Dias et al. (2018).

Details

The Journal of Risk Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 21 September 2021

Mahdi Ghaemi Asl, Muhammad Mahdi Rashidi and Seyed Ali Hosseini Ebrahim Abad

The purpose of this study is to investigate the correlation between the price return of leading cryptocurrencies, including Bitcoin, Ethereum, Ripple, Litecoin, Monero…

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82

Abstract

Purpose

The purpose of this study is to investigate the correlation between the price return of leading cryptocurrencies, including Bitcoin, Ethereum, Ripple, Litecoin, Monero, Stellar, Peercoin and Dash, and stock return of technology companies' indices that mainly operate on the blockchain platform and provide financial services, including alternative finance, democratized banking, future payments and digital communities.

Design/methodology/approach

This study employs a Bayesian asymmetric dynamic conditional correlation multivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) (BADCC-MGARCH) model with skewness and heavy tails on daily sample ranging from August 11, 2015, to February 10, 2020, to investigate the dynamic correlation between price return of several cryptocurrencies and stock return of the technology companies' indices that mainly operate on the blockchain platform. Data are collected from multiple sources. For parameter estimation and model comparison, the Markov chain Monte Carlo (MCMC) algorithm is employed. Besides, based on the expected Akaike information criterion (EAIC), Bayesian information criterion (BIC), deviance information criterion (DIC) and weighted Deviance Information Criterion (wDIC), the skewed-multivariate Generalized Error Distribution (mvGED) is selected as an optimal distribution for errors. Finally, some other tests are carried out to check the robustness of the results.

Findings

The study results indicate that blockchain-based technology companies' indices' return and price return of cryptocurrencies are positively correlated for most of the sampling period. Besides, the return price of newly invented and more advanced cryptocurrencies with unique characteristics, including Monero, Ripple, Dash, Stellar and Peercoin, positively correlates with the return of stock indices of blockchain-based technology companies for more than 93% of sampling days. The results are also robust to various sensitivity analyses.

Research limitations/implications

The positive correlation between the price return of cryptocurrencies and the return of stock indices of blockchain-based technology companies can be due to the investors' sentiments toward blockchain technology as both cryptocurrencies and these companies are based on blockchain technology. It could also be due to the applicability of cryptocurrencies for these companies, as the price return of more advanced and capable cryptocurrencies with unique features has a positive correlation with the return of stock indices of blockchain-based technology companies for more days compared to the other cryptocurrencies, like Bitcoin, Litecoin and Ethereum, that may be regarded more as speculative assets.

Practical implications

The study results may show the positive role of cryptocurrencies in improving and developing technology companies that mainly operate on the blockchain platform and provide financial services and vice versa, suggesting that managers and regulators should pay more attention to the usefulness of cryptocurrencies and blockchains. This study also has important risk management and diversification implications for investors and companies investing in cryptocurrencies and these companies' stock. Besides, blockchain-based technology companies can add cryptocurrencies to their portfolio as hedgers or diversifiers based on their strategy.

Originality/value

This is the first study analyzing the connection between leading cryptocurrencies and technology companies that mainly operate on the blockchain platform and provide financial services by employing the Bayesian ssymmetric DCC-MGARCH model. The results also have important implications for investors, companies, regulators and researchers for future studies.

Details

Journal of Enterprise Information Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1741-0398

Keywords

Content available
Article
Publication date: 28 July 2021

Emna Mnif and Anis Jarboui

After the COVID-19 outbreak, the Federal Reserve has undertaken several monetary policies to alleviate the pandemic consequences on the stock markets leading to a…

Abstract

Purpose

After the COVID-19 outbreak, the Federal Reserve has undertaken several monetary policies to alleviate the pandemic consequences on the stock markets leading to a misunderstanding on the cryptocurrency market response. This paper aims to evaluate the effects of the Federal Reserve monetary policy on the Islamic and conventional cryptocurrency dynamics during the COVID-19 pandemic. We, specifically, examine the associate bubbles and feedbacks effects.

Design/methodology/approach

This paper developed a novel methodology that detects market bubbles using the statistical indicators defined by Psychological (PSY) tests. It also investigated the effect of the Federal Open Market Committee (FOMC) announcements on conventional and Islamic cryptocurrencies compatible with Islamic laws “Shari’ah” by using the event-driven regression.

Findings

The empirical results show that the FOMC announcements have a positive significant effect after one day of the event and a negative effect before two days of the announcement on the conventional cryptocurrency markets. However, the reaction of Islamic cryptocurrencies to these events is not significant except for Hello Gold after one day of the announcement. Besides, the Hello Gold and X8X cryptocurrencies present no bubbles during this period. However, Bitcoin and Ethereum markets have short-lived bubbles.

Research limitations/implications

The main contribution of this study is the investigation of the response and vulnerability to pandemic shocks of a new category of cryptocurrencies backed by tangible assets. This work has practical implications as it provides new insights into trading opportunities and market reactions.

Originality/value

To our knowledge, this work is the first study that compares the response of Islamic and conventional cryptocurrency markets to FOMC announcements during the COVID-19 pandemic and examines the presence of bubbles in these markets. Besides, the originality of this work is derived from the novelty of the data employed and the method used (PSY tests) in this study.

Details

Asian Journal of Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2443-4175

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Article
Publication date: 11 August 2021

Bayu Adi Nugroho

This paper aims to analyze the time-varying connectedness of gold-backed cryptocurrencies and gold. This study determines the volatility spillovers in these two asset…

Abstract

Purpose

This paper aims to analyze the time-varying connectedness of gold-backed cryptocurrencies and gold. This study determines the volatility spillovers in these two asset classes and the performance of bivariate portfolios based on net pairwise spillovers.

Design/methodology/approach

This research uses two Islamic and four conventional gold-backed cryptocurrencies and gold as variables. GJR-GARCH method under corrected DCC (cDCC) of Aielli (2013) evaluates the dynamic connectedness. Additionally, the spillovers are created using the dynamic connectedness of Diebold and Yilmaz (2012). A network-based spillover of Diebold and Yılmaz, (2014) is also made. A dynamic optimal weights strategy optimized with DCC-t-Copula determines bivariate portfolios’ performances. In general, there are 21 bivariate portfolios.

Findings

The outbreak of COVID-19 increases the dynamic connectedness of gold and gold-backed cryptocurrencies, which indicates a contagion effect. The results show that gold is the net volatility receiver during the COVID-19 pandemic. Moreover, a portfolio composed of gold and gold-backed cryptocurrency provides high profitability performance but zero hedge effectiveness under optimal weights strategy.

Practical implications

According to bivariate portfolios based on net pairwise spillovers, gold-backed cryptocurrencies' investors should not add gold to their portfolio during the pandemic because it is a net receiver of risk from the cryptocurrencies.

Originality/value

To the best of the author’s knowledge, this is the first paper to create bivariate portfolios composed of gold-backed cryptocurrencies and their underlying asset using DCC-t-Copula.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 7
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 28 August 2021

Joye Ter Ji-Xi, Yashar Salamzadeh and Ai Ping Teoh

The purpose of this study is to empirically examine the factors influencing consumer behavioral intention (BI) to use cryptocurrency as a medium of transaction. Constructs…

Abstract

Purpose

The purpose of this study is to empirically examine the factors influencing consumer behavioral intention (BI) to use cryptocurrency as a medium of transaction. Constructs from the unified theory of acceptance and use of technology model and an added variable, perceived risk (PR), are examined to predict BI. Age and gender as moderators are retained in this model.

Design/methodology/approach

An online survey was used to gather the respondents’ responses on a five-point Likert scale. G * Power was used to calculate the required minimum sample size. A non-probability sampling technique was used to gather data from the 290 respondents based in Malaysia. The final data set was analyzed using the statistical package for the social sciences and SmartPLS software using structural equation modeling.

Findings

The results show that three of the five proposed factors (performance expectancy, effort expectancy and facilitating condition) are significant predictors of BI to adopt cryptocurrency as a medium of transaction. Interestingly, PR is not a significant predictor even though prior research studies showed otherwise. Likewise, the relationship between BI and social influence became significant only when age is added as a moderator.

Practical implications

Malaysians are still wary of cryptocurrency, even though global tech firms such as Amazon and Microsoft are already accepting Bitcoin as a payment method. This study aims to provide relevant authorities and businesses (i.e. central bank, retail merchants and cryptocurrency exchangers) insights toward understanding the factors consumers focus on if they were to use cryptocurrency as a medium of transaction.

Originality/value

Most cryptocurrency research are done in developed countries (i.e. USA, UK and EU) perspective. This research addresses the lack of quantitative literature on significant factors influencing BI to use cryptocurrency in developing country context while taking a PR, age and gender into consideration.

Details

The Bottom Line, vol. 34 no. 2
Type: Research Article
ISSN: 0888-045X

Keywords

Content available
Article
Publication date: 1 July 2021

Matteo Foglia and Peng-Fei Dai

The purpose of this paper is to extend the literature on the spillovers across economic policy uncertainty (EPU) and cryptocurrency uncertainty indices.

Abstract

Purpose

The purpose of this paper is to extend the literature on the spillovers across economic policy uncertainty (EPU) and cryptocurrency uncertainty indices.

Design/methodology/approach

This paper uses cross-country economic policy uncertainty indices and the novel data measuring the cryptocurrency price uncertainties over the period 2013–2021 to construct a sample of 946 observations and applies the time-varying parameter vector autoregression (TVP-VAR) model to do an empirical study.

Findings

The findings suggest that there are cross-country spillovers of economic policy uncertainty. In addition, the total uncertainty spillover between economic policies and cryptocurrency peaked in 2015 before gradually decreasing in the following periods. Concomitantly, the cryptocurrency uncertainty has acted as the “receiver.” More importantly, the authors found the predictive power of economic policy uncertainty to predict the cryptocurrency uncertainty index. This paper’s results hold robust when using alternative measurement of cryptocurrency policy uncertainty.

Originality/value

This study is the first research that deeply investigates the association between two uncertainty indicators, namely economic policy uncertainty and the cryptocurrency uncertainty index. We provide fresh evidence about the dynamic connectedness between country-level economic policy uncertainty and the cryptocurrency index. Our work contributes a new channel driving the variants of uncertainties in the cryptocurrency market.

Details

Journal of Asian Business and Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2515-964X

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Article
Publication date: 14 June 2021

Christoph Wronka

The aim of this paper is to assess the relevance of cryptocurrencies with regard to the money laundering risk on the market and to present widespread money laundering…

Abstract

Purpose

The aim of this paper is to assess the relevance of cryptocurrencies with regard to the money laundering risk on the market and to present widespread money laundering techniques and recognizable patterns of abuse. In addition, this paper aims to find an answer to the question to what extent the measures of the fifth EU Anti-Money Laundering Directive (AMLD) as well as other appropriate preventive measures are sufficient to reduce the money laundering risk in the area of virtual currencies (VC).

Design/methodology/approach

Firstly, the analysis requires a consideration of the theoretical foundations of money laundering methods, as well as a presentation of the technical foundations of cryptocurrencies and their ecosystem. Secondly, it is discussed to what extent VC are suitable for money laundering, which characteristics enable them to launder money and which new money laundering techniques result from this. In addition, a comparison of different money laundering risk classification is done in relation to VC from the perspective of different actors in the financial market.

Findings

Owing to their simple electronic storage and transferability, crypto assets pose a concrete risk of money laundering. Their inclusion in the fifth AMLD was therefore a necessary step by the European legislator. However, the question arises to whether the directive and the further preventive measures presented in this paper sufficiently fulfil the objective of reducing the money laundering risk in relation to VC. One positive aspect is the inclusion of the crypto custody business as a financial service in the German Banking Act. According to the definition in Section 1 (1a) sentence 2 no. 6, the offering of wallets is subject to authorization and the offering party becomes an obligated party within the meaning of the Germany Money Laundering Act. From a supervisory point of view, the new licensing requirement is very much welcomed, as the custody of private cryptographic keys entails considerable risks. However, non-custodian wallet providers who do not store the private keys of their users, are not covered. A closer analysis of the amending directive to the fourth EU AMLD reveals that other relevant players in the crypto market, such as mixer and tumbler services, are also not covered.

Originality/value

It is quite clear that cryptocurrencies and the blockchain technology will continue to accompany one in the coming years. Further credit institutions arising in the market exposed to the described risks will be seen. The paper will therefore present and evaluate possible risk reduction/options for anti-money laundering for new and existing financial institutions.

Details

Journal of Money Laundering Control, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1368-5201

Keywords

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