Abstract
This study investigates the causal relationship between the top-five cryptocurrencies and the US dollar at different levels of the return’s distribution. We address this issue based on the Granger-causality in quantiles before and during the ongoing COVID-19 health crisis. The Granger causality test in mean shows a significant causal relationship between the two markets mainly during the COVID-19 pandemic period. By differentiating between markets states, the causality in quantiles test indicates evidence of causality between the US dollar and cryptocurrencies generally at the upper and lower tails of the distribution. Moreover, during the health crisis period, the US dollar loses its predictive power in favor of cryptocurrencies, which can act as good predictors and play a hedging role against the US dollar variations. Further analysis of the sign of causality indicates that each currency market’s effect on the other depends on the distribution level and the sub-period. We find that the recent COVID-19 crisis has had a considerable effect on the crypto-conventional currencies’ relationship and has established a more important place for cryptocurrencies in the financial system.