Cryptocurrency and Innovation: The Relationship with Technology in Light of Risk Aversion and Market Sentiment

This article aims to analyze the relationship between the log prices of selected cryptocurrencies and the technology indices of different caps, using risk aversion, market risk sentiment, and index returns as interaction variables. The relationship is examined using both panelmediated regression and Granger pairwise causality analysis. Moreover, the analysis is also applied to the two data subsets covering two periods—pre and during the COVID-19 pandemic—with comparisons. The results show that when mediated by certain variables, such as implied volatility and market index, technology indices show some well-defined and somewhat persistent links with the exchange rates of cryptocurrencies against the fiat currencies considered. Coefficients indicate substantial diversification effects across most cryptocurrencies and technology indices, with significant differences when considering different regions of the world. Such results can benefit investors and wealth managers seeking diversification benefits, as well as those chasing exposure (crypto) currency risks.