From Diversifier to Amplifier? Investigating the BTC–NDX Linkage and the Modulating Role of VIX

Abstract

The growing interconnection between cryptocurrencies and traditional financial markets such as US equities has attracted increasing scholarly attention, with important implications for risk management and asset allocation. This study aims to quantitatively assess the volatility spillover and dynamic correlation between Bitcoin and major US technology stock indices, specifically the Nasdaq-100 (NDX), and to examine the moderating role of investor sentiment in this relationship. Using a multi-stage econometric framework combining univariate GARCH(1,1), dynamic conditional correlation (DCC-GARCH), and OLS regression models. Since Bitcoin only entered the public spotlight in 2017, this article will focus on daily data from 2017 to 2024. The results reveal significant time-varying correlations between BTC and NDX, which intensify during systemic events such as the COVID-19 crash and the US monetary tightening cycle. This article also detects a weak but notable bidirectional volatility spillover, with increased BTC volatility leading to higher NDX fluctuations. Notably, the regression results show that investor fear, represented by the VIX index in this article, significantly amplifies the BTC-NDX correlation (γ = 0.0106, p < 0.001), suggesting a sentiment-driven trend during stress periods. These findings indicate that Bitcoin is potentially no longer an isolated digital asset but a non-negligible source of volatility for US stock markets, especially for high-volatility tech stocks. Investor sentiment acts as a key amplifier of this connection. The results have a practical contribution to portfolio diversification strategies, systematic risk monitoring by policymakers, and the design of a more advanced risk management structure in financial institutions.