Dynamic relationships between Bitcoin price and USDT market capitalization: A VECM approach

Abstract

This empirical study explores the dynamic relationships between Bitcoin price and USDT market capitalization to understand the spillover risks in the cryptocurrency sector, therefore suggests policies to reduce systemic risk contagion and maintain global financial stability. This study employs daily secondary data including Bitcoin price and USDT market capitalization collected from CoinGecko, with the research period running from March 6, 2015 to September 22, 2025. This study applies the VECM model, assesses short-run and long-run causality, analyzes orthogonalized impulse–response function, cumulative orthogonalized impulse–response function and cholesky forecast-error variance decomposition. The study findings indicate that in the short-run, increasing in USDT market capitalization causes Bitcoin price to increase, in the long-run, increasing in Bitcoin price causes USDT market capitalization to increase. The influence of Bitcoin price on USDT market capitalization is greater than the other direction. There is an amplification effect and volatility propagation risk between the two variables, with the response to shocks multiplying over time. The findings are consistent with recent research conducted internationally. This study establishes the foundation for future research into the systemic risk in the cryptocurrency market, while supporting investors and financial institutions in forecasting and making investment decisions.