Decoupling and contagion in bitcoin markets: Evidence from a Bayesian volatility model

• Bitcoin’s dual role : It alternates between a systemic risk amplifier in crises and a decoupled hedge in tranquil regimes, revealed through a Bayesian model. • Portfolio & policy value : A regime-aware allocation strategy improves risk-adjusted performance and aligns with Basel III and MiCA frameworks. • Original contribution : The study unifies endogenous regime discovery, contagion–hedge dynamics, and ESG/regulatory integration into a single framework, offering actionable insights for investors and regulators This paper explores Bitcoin's shifting role as either a systemic risk amplifier or a decoupled hedge across financial regimes. Using a Bayesian time-varying parameter VAR with stochastic volatility (TVP-VAR-SV), I analyze Bitcoin's dynamic connectedness with traditional assets, including gold, the S&P 500, and U.S. Treasury bonds. The results reveal strong asymmetries: Bitcoin amplifies stress during turbulent periods, aligning with risk assets, while showing decoupling behavior under stable conditions—traits missed by static models. I also assess implications for portfolio design and regulation. A backtested ESG-constrained strategy based on regime classification enhances downside protection. The approach supports compliance with emerging frameworks like MiCA and Basel III, offering actionable insights for institutional crypto integration.