Cryptocurrency Volatility and Its Spillover Effects on Traditional Financial Markets

Abstract

This study investigates how cryptocurrency volatility interacts with traditional financial markets using a systematic literature review of peer reviewed journal articles. The review synthesizes evidence on volatility behaviour in major cryptocurrencies such as Bitcoin and Ethereum and on return and volatility spillovers to equities, commodities, foreign exchange, and benchmark indicators of market uncertainty. The findings indicate that cryptocurrencies exhibit persistent and pronounced volatility and frequently act as net transmitters of risk, with spillovers that intensify during periods of global stress and episodes of policy uncertainty. Cross market linkages are strongest at shorter horizons and during crisis regimes, reducing the reliability of cryptocurrencies as safe haven or hedging instruments and weakening the diversification benefits of conventional assets such as gold. The study also identifies important gaps, including fragmented country specific evidence and limited multi asset perspectives, and highlights the need for dynamic, regime sensitive risk management and prudential frameworks that explicitly incorporate the evolving role of cryptocurrencies in global risk transmission. These insights provide guidance for regulators, investors, and risk managers.