THE IMPORTANCE OF BLOCKCHAIN TECHNOLOGY AND CRYPTOCURRENCIES FOR FINANCIAL MARKETS AND INSTITUTIONS

Abstract

Blockchain is a decentralized public record that can be used to register, inventory, and transfer any sort of asset, not just financial ones. Using encryption and consensus methods, Blockchain refers to a form of distributed ledger technology. This means that instead of keeping data in one place, it is kept in many places. Bitcoin public blockchain became the first generally known application of blockchain. When blockchains first came out, they were used for things like decentralization, encryption, consensus and immutability. There have since been many different types of blockchains that have been used for different things. Banking and finance professionals utilize blockchain technology to settle transactions and create digital currencies, and also in supply chain applications to assist people in resolving disputes swiftly and efficiently. A “centralized database” managed by one authoritative source is common in the traditional financial system. Instead, blockchain technology enables the establishment of a distributed database that can handle an ever-growing number of entries while also ensuring that the ledger is constantly synchronized and updated across multiple networks. In this context, this thesis aims to determine the relationship between cryptocurrencies and financial markets, which emerged as a development of blockchain technology. In the research, cryptocurrencies were represented by the two most important ones, Bitcoin and Ethereum. In financial markets, Dow Jones, S & P and NASDAQ indices representing stock markets; Gold and Brent Oil were used to represent commodities and the Dollar Index was used to represent currencies. In accordance with the purpose, 20 linear regression models were established. It has been found that the return performances of Dow Jones, S&P and NASDAQ indices have a statistically significant effect on the return performance of cryptocurrencies. The direction of this effect is positive in both Bitcoin and Ethereum. Gold prices also affect the value of v cryptocurrencies statistically positively. In the case where Gold and Dow Jones index are included in the same model, the effect on cryptocurrencies is also positive and significant. Bivariate analysis indicates that, Brent Oil has a positive effect on the return of cryptocurrencies, but also positively with Gold in the same model. The most striking result was seen in the dollar index, that is, in all four models in which the dollar index was included as an independent variable, it was determined that the dollar index had a negative and significant effect on the value of cryptocurrencies. In other words, when the value of the dollar appreciates against other currencies, the value of cryptos is negatively affected. The results of this research show that cryptocurrencies targeting decentralized and independent finance are actually influenced by traditional financial instruments (stock market indices, precious metals such as gold, commodities such as brent and currencies such as dollar index).