Interconnected Risks: Exploring the Spillover affect among Bitcoin, Energy, and Carbon Markets

• The risk connectedness among Bitcoin, energy and the carbon market has been studied; • A new quantile connectedness approach has been applied; • Traditional estimates of risk spillover effects underestimate market risk connectedness under extreme conditions; • Short-term spillover effects are key in governing the risk connectedness network. As the energy consumption during Bitcoin mining continues to grow, resulting in a widespread embedded carbon footprint, the associated risk factors have drawn attention. This research investigates the risk spillover effects between Bitcoin and both the energy and carbon markets by utilizing a quantile vector autoregression (QVAR) methodology. The research aims to develop a network of risk transmission and examines both immediate versus delayed spillover impacts among the prices of Bitcoin, Coal, Crude oil, Natural gas, and Carbon indices. It considers a range of market circumstances and durations, analyzing them considering both time-varying and frequency-based effects dimensions. Under extreme market conditions, the potential for adverse outcomes correlation between the energy market and the Bitcoin market significantly increases, with risk connectivity notably higher than when the market is in a mid-state. The research indicates that temporary uncertainty shocks exert a particularly pronounced influence on overall connectivity, being a key factor influencing spillover dynamics regardless of whether the market is in an extreme upward or downward phase. As investors' medium- to long-term expectations progressively align with rational assessments, the degree of risk interconnectivity among markets has diminished. Under extreme circumstances, the interdependence of risk across sectors is predominantly influenced by the interconnections between the natural gas and Bitcoin sectors, as well as those between the natural gas and coal sectors. With the continuous increase in cryptocurrency acceptance and the escalation of geopolitical risks, the overall level of dynamic spillover continues to rise, and market volatility has become more frequent and intense.