Can Climate Risk Pave the Way for Major Cryptocurrencies, DeFi Assets and NFTs Markets During Elevated Inflation?

This study examines the dynamic connectedness that the innovative natural disasters index displays with major cryptocurrencies, decentralized finance assets (DeFi) and non-fungible tokens (NFTs) during the Russia-Ukraine conflict under intense inflationary pressures. Data spanning from 14 December 2021 to 31 January 2025 and three specifications of the Quantile Vector Autoregressive (Q-VAR) methodology at lower, middle and upper quantiles are adopted. Results indicate that natural disaster uncertainty has a larger footprint on DeFi assets in bear markets but is more influential on the NFTs in bull markets. So it acts as a hedge against medium risk digital currencies when pessimism prevails and motivates for investing in riskier assets in elevated investor optimism. The Ripple, Synthetic and Gala assets are the most tightly linked with natural disasters’ sentiment. Higher levels of geopolitical and monetary uncertainties fuel the switch of investors’ decision-making criteria. This study provides valuable insights for the potential of modern cryptocurrencies to survive during crises when conventional currencies devaluate and offers a compass for monetary authorities and investors.