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Abstract:
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We develop the novel drawdown and drawup methodology to systematically investigate the characteristics of shocks, bubbles and crashes of the top ten crypto coins in the cryptocurrency market, including Bitcoin, Bitcoin Cash, Ethereum, Ethereum classic, Litcoin, Stellar, XRP, Tether, Cardano, and Chainlink. At each time point, the activeness of the current drawup (drawdown) phase will be checked by comparing the value of largest deviation with a predefined tolerance value, which quantifies the allowable level of price movement against the drawup (drawdown) trend. In addition, we apply the log-periodic power law singularity (LPPLS) methodology to classify the origins of bubbles and crashes into two types: endogenous and exogenous. Further, we employ the Lagrange regularisation of the normalised sum of the squared residuals to identify the optimal start time of financial bubbles. This paper creates a paradigm for future studies in bubble and crash detection and underlying mechanism dissection in not only the cryptocurrency market. but also other financial markets and economic indexes.
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