Environmental sustainability and systemic risks in cryptocurrencies: evidence from dynamic linkages

Purpose This study examines the evolving role of green and conventional cryptocurrencies in systemic risk transmission within global financial markets, focusing on environmental sustainability. It specifically assesses whether ESG-aligned tokens act as financial safe havens or contribute to systemic vulnerabilities. Design/methodology/approach Using a time-varying parameter vector autoregressions (TVP-VAR) framework, the analysis covers 2020–2025 and investigates dynamic connectedness, volatility propagation and shock transmission among selected digital assets across multiple market conditions. Findings The results show that environmentally sustainable cryptocurrencies, such as ADA and XRP, frequently serve as dominant transmitters of volatility across both stable and turbulent market conditions. In contrast, traditional proof-of-work cryptocurrencies, including Bitcoin (BTC) and Litecoin (LTC), tend to act as volatility absorbers, largely owing to their liquidity depth and central positions within the network. These findings directly challenge the widespread assumption that ESG-aligned tokens inherently offer financial resilience. Practical implications The results provide valuable guidance for portfolio managers, ESG-oriented investors and regulators, emphasizing that sustainability credentials alone do not ensure systemic stability. Market microstructure factors, including liquidity, investor composition and network effects, are critical for effective risk management. Originality/value This study is among the first to systematically integrate environmental sustainability into the analysis of systemic risk in cryptocurrency markets. By revealing the paradoxical role of green tokens as potential volatility transmitters and highlighting the critical influence of market microstructure, it provides insights that bridge financial stability, ESG investment strategies and regulatory policy. The findings offer a robust foundation for both future academic research and the design of more informed, resilient and environmentally conscious financial frameworks.