The linkage between Bitcoin and foreign exchanges in developed and emerging markets.

This study investigates the connectedness between Bitcoin and fiat currencies in two groups of countries: the developed G7 and the emerging BRICS. The methodology adopts the regular (R)-vine copula and compares it with two benchmark models: the multivariate t copula and the dynamic conditional correlation (DCC) GARCH model. Moreover, this study examines whether the Bitcoin meltdown of 2013, selloff of 2018, COVID-19 pandemic, 2021 crash, and the Russia-Ukraine conflict impact the linkage with conventional currencies. The results indicate that for both currency baskets, R-vine beats the benchmark models. Hence, the dependence is better modeled by providing sufficient information on the shock transmission path. Furthermore, the cross-market linkage slightly increases during the Bitcoin crashes, and reaches significant levels during the 2021 and 2022 crises, which may indicate the end of market isolation of the virtual currency.