China & World Economy / 122–143, Vol. 28, No. 1, 2020

Do Cryptocurrencies Increase the Systemic Risk
of the Global Financial Market?
Shiyun Li, Yiping Huang

Abstract

The advance of cryptocurrencies has sparked wide concern over their interplay with the existing global financial market. This paper analyzes the risk spillover relation between cryptocurrencies and major financial assets， and unravels how cryptocurrencies could influence global financial systemic risk. We find that cryptocurrencies function as a separate risk source from traditional assets. Major legislative, financial and technological events in the cryptocurrency market may affect risk spillover dynamics. Although the overall penetration of cryptocurrencies is not yet deep, introducing cryptocurrency can significantly increase the systemic risk to traditional markets during low risk level episodes.