Lin, Min-Bin Khowaja, Kainat Chen, Cathy Yi-Hsuan Härdle, Wolfgang Karl
Year of Publication:
IRTG 1792 Discussion Paper No. 2020-027
Humboldt-Universität zu Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series", Berlin
We investigate the relationship between underlying blockchain mechanism of cryptocurrencies and its distributional characteristics. In addition to price, we emphasise on using actual block size and block time as the operational features of cryptos. We use distributional characteristics such as fourier power spectrum, moments, quantiles, global we optimums, as well as the measures for long term dependencies, risk and noise to summarise the information from crypto time series. With the hypothesis that the blockchain structure explains the distributional characteristics of cryptos, we use characteristic based spectral clustering to cluster the selected cryptos into five groups. We scrutinise these clusters and find that indeed, the clusters of cryptos share similar mechanism such as origin of fork, difficulty adjustment frequency, and the nature of block size. This paper provides crypto creators and users with a better understanding toward the connection between the blockchain protocol design and distributional characteristics of cryptos.