Integration and Risk Transmission Dynamics of the Exchange Rate of Bitcoin, Currency Pairs on Traditional South African Financial Assets

We employ a Time-Varying Parameter Vector Autoregression (TVP-VAR) and wavelet approach to gain new insights into the integration and dynamic asymmetric volatility risk spillovers between Bitcoin exchange rates, currency pairs, and traditional financial assets. The findings reveal strengthened integration between traditional financial assets and currency pairs, whereas a weak integration with BTC/ZAR. Furthermore, BTC/ZAR and traditional financial assets are receivers of shocks, while traditional currency pairs are transmitters of spillovers. Gold emerges as an attractive investment during periods of inflation or currency devaluation. However, it also offers a reduced systemic risk, as the total connectedness represents only 28.37%. Forex markets and traditional financial assets present distinct patterns in scale and frequency, with leading and lagging relationships observed in the long, medium, and short terms. BTC/ZAR leads the ALSI in the medium term, while its relationship with Bonds moves in opposite directions. Gold's negative influence on BTC/ZAR suggests diversification benefits, potential hedging strategies, and insights into market sentiment and macroeconomic dynamics. Bitcoin's high volatility and lack of regulatory oversight continue to be deterrents for institutional investors. These findings contribute to a deeper understanding of the interplay between Bitcoin, forex markets, and traditional financial assets in the South African context.