Modeling systemic financial stress in the era of digital assets: an OLS analysis of monetary and market determinants

Abstract

This scientific article provides a comprehensive analysis of the evolving architecture of systemic financial stability amid the intensive integration of decentralized digital assets into the traditional global macroeconomic framework. The research problem addresses the urgent objective necessity to redefine the classical determinants of market stress, as the emergence of novel asset classes, radical shifts in monetary policy regimes, and the global digitalization of financial capital fundamentally reshape the traditional transmission channels of systemic shocks. The objective of the article is to perform an in-depth quantitative evaluation and rigorous verification of the dynamic relationship between global monetary liquidity, equity market volatility, and Bitcoin valuations as primary factors determining the complex trajectory of systemic financial stress during the 2021-2025 observation period. To achieve this stated objective, a sophisticated array of research methods was professionally employed, specifically multivariate regression analysis based on the Ordinary Least Squares (DOLS) framework. The strategic adoption of a log specification allowed for the effective standardization of heterogenous statistical data and facilitated the precise interpretation of results through rigorous elasticity measures. A crucial methodological component involved the deliberate integration of dependent variables to mitigate potential serial correlation effects, which, combined with comprehensive diagnostic testing using the Durbin-Watson statistic, ensured high statistical significance, unbiasedness, and robustness of the econometric estimates within a non-stationary and high-frequency time-series environment. The main scientific results of the study conclusively demonstrate that within the contemporary financial landscape, Bitcoin has acquired the stable characteristics of a statistically significant counter-cyclical indicator. The developed model revealed a negative elasticity coefficient of -0.218, providing robust empirical evidence that increasing cryptocurrency market capitalization in the current evolutionary stage directly correlates with a reduction in overall systemic tension, thereby validating the “Risk-On” hypothesis (risk appetite indicator). Simultaneously, the study establishes that traditional equity market volatility (VIX index) and expanded money supply (M2 aggregate) remain fundamental determinants of instability, exerting sustained cumulative pressure on the financial system and increasing the amplitude of stress index fluctuations. The theoretical significance of the findings lies in the fundamental expansion of the financial transmission mechanism concept by incorporating digital assets as relevant and vital barometers of global risk sentiment. The practical significance of the research is determined by the potential implementation of the proposed dynamic model by central banks and national financial regulators to enhance the effectiveness of Early Warning Systems (EWS). This analytical framework enables proactive monitoring of financial stability in a modern, multi-asset digital environment, ensuring significantly higher predictive accuracy during periods of high market volatility, structural economic shifts, and prolonged global financial turbulence.