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<p>The rapid expansion of cryptocurrencies has led to the emergence of cryptocurrency hedge funds, a new hedge fund category. This study examines their dynamic and asymmetric relationship with the cryptocurrency market. Using a time-varying parameter vector autoregression model, we analyze data spanning the period 2016–2024 to assess dependence between traditional hedge funds, cryptocurrency hedge funds, and the three largest cryptocurrencies by market capitalization: Bitcoin, Ethereum Classic, and Tether. We particularly focus on the impact of cryptocurrency price fluctuations on hedge fund valuations during major crises, such as the COVID-19 pandemic and the Russia–Ukraine conflict. Our findings reveal that traditional hedge funds play a more stable role in financial networks, while cryptocurrency hedge funds primarily absorb market shocks. Within this framework, Bitcoin and Ethereum Classic act as shock absorbers, while Tether alternates between absorbing and transmitting shocks. Moreover, market stress intensifies both the interconnectedness and asymmetry in responses between hedge funds and cryptocurrencies, heightening systemic risk. These insights provide valuable guidance for hedge fund managers, cryptocurrency investors, and policymakers seeking to evaluate hedge fund strategies and mitigate crisis-induced financial instability.</p>

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Exploring the relationship between cryptocurrencies and hedge funds: evidence from recent crises

  • 期刊论文

  • 发表日期：

    2026年2月25日

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  • Wafa MASMOUDI KAMMOUN

摘要

The rapid expansion of cryptocurrencies has led to the emergence of cryptocurrency hedge funds, a new hedge fund category. This study examines their dynamic and asymmetric relationship with the cryptocurrency market. Using a time-varying parameter vector autoregression model, we analyze data spanning the period 2016–2024 to assess dependence between traditional hedge funds, cryptocurrency hedge funds, and the three largest cryptocurrencies by market capitalization: Bitcoin, Ethereum Classic, and Tether. We particularly focus on the impact of cryptocurrency price fluctuations on hedge fund valuations during major crises, such as the COVID-19 pandemic and the Russia–Ukraine conflict. Our findings reveal that traditional hedge funds play a more stable role in financial networks, while cryptocurrency hedge funds primarily absorb market shocks. Within this framework, Bitcoin and Ethereum Classic act as shock absorbers, while Tether alternates between absorbing and transmitting shocks. Moreover, market stress intensifies both the interconnectedness and asymmetry in responses between hedge funds and cryptocurrencies, heightening systemic risk. These insights provide valuable guidance for hedge fund managers, cryptocurrency investors, and policymakers seeking to evaluate hedge fund strategies and mitigate crisis-induced financial instability.