From Digital to Sustainable: Unveiling the Complex Interactions Between Cryptocurrencies, Traditional Markets and Sustainable Finance in India

This study examines the dynamic interdependencies and causal relationships among the returns of cryptocurrencies (Bitcoin and Ethereum), traditional financial assets (NIFTY 50, USD/INR, and 10-year Indian Government Bond), commodities (MCX Gold and MCX Crude Oil), and sustainable finance indices (NIFTY 100 ESG Index) within the Indian financial market from April 2016 to March 2024, employing the Vector Autoregression (VAR) model. The findings indicate substantial correlations between bitcoin performance and conventional assets. A positive shock in Bitcoin returns results in a transient increase in NIFTY 50 returns, but Ethereum has a delayed reaction to fluctuations in commodity prices, particularly gold. The variance decomposition research indicates that Bitcoin substantially influences the forecast error variance of both NIFTY 50 and MCX Gold. Granger causality studies reveal bidirectional causation between Bitcoin and NIFTY 50 returns, as well as unidirectional causality from Ethereum to USD/INR exchange rates. These statistics show how much cryptocurrencies, especially Bitcoin and Ethereum, are increasingly affecting conventional financial markets and commodities. Since these trends affect stock markets, commodities, and exchange rates and thereby impact investments, the study emphasizes the need for investors to consider bitcoin trends in their decisions.