Volatility Dynamics and Spillovers in Cryptocurrency Markets: Evidence from the Bitcoin ETF Approval

This article examines the volatility spillover effects following the Bitcoin ETF approval shock. We identify October 23, 2023, as an endogenously detected structural breakpoint coinciding with heightened ETF-related market attention. Using high-frequency five-minute data, we decompose Bitcoin and Ethereum realized volatility into continuous and jump components using threshold bipower variation. We find a pronounced decline in Ethereum’s jump variation and a smaller but statistically significant decline in Bitcoin’s jump variation. Employing a VAR-X model augmented with market indicators, followed by a bivariate GARCH–BEKK analysis, we find that short-term cross-market volatility spillovers between Bitcoin and Ethereum markedly weaken after the breakpoint on October 23, 2023, indicating reduced immediate shock responsiveness. Conversely, long-term volatility interdependence strengthens, reflecting persistent linkages. Moreover, our conditional correlation analysis reveals that while pre-break correlations were robust (consistently above 0.8), post-break correlations weaken considerably—occasionally falling below 0.5—thereby unveiling a distinct shift in co-movements among cryptocurrencies.