ABSTRACT
This paper assesses the effectiveness of a broad set of 1066 active and continuously traded cryptocurrencies as a safe haven instrument against extreme oil price movements, in comparison to the corresponding roles of gold. The uncertainty for the oil market during the COVID-19 pandemic and the subsequent Russia–Ukraine conflict set the tone for natural experiments for our study. We use a trail-blazing dynamic generalized autoregressive score model to estimate the tail riskiness of the potential safe haven assets from January 1, 2020, to September 30, 2022. By estimating the risk exposure of all cryptocurrency assets, we determine top ten safest assets for investment. Our results show the emergence of new safe haven cryptocurrencies, which have previously been ignored by the academic literature and policy makers alike. Intriguingly, our findings reveal that gold has been replaced by altcoins as the safest assets during both the COVID-19 pandemic and the Russia–Ukraine conflict. At this instance, our findings suggest that Bitcoin provides lengthier safe haven properties than gold for oil returns in both periods. However, the safe haven properties of gold and cryptocurrencies are time varying. Last but not least, we introduce a new Cryptocurrency Tail Risk Index (CTRI) that captures the risk exposure of cryptocurrency market, as a whole. Our results suggest that investment in numerous cryptocurrencies provides lengthier safe haven properties than investing in gold alone.
ABSTRACT
Heterogeneity in informational inefficiency in a cross-market virtual currency, such as Bitcoin, allows for the extraction of differential gains from a portfolio of investments over time. In this paper, we measure inefficiency in five country/region segmented Bitcoin markets based on dynamic estimation of the fractional integration order of their price series. Results reveal a time-varying and country-specific pattern of inefficiency in the five Bitcoin markets, although the degree of inefficiency in each market has declined over time. Further, we introduce a new decomposition method to disentangle components of the inefficiency degree. Results suggest that the total variation around the convergence benchmark has fallen, whilst the proportion due to the difference between convergence and efficiency has risen from approximately 77% in 2013 to almost 100% in 2020. Besides, evidence of convergence emerges until the outbreak of COVID-19, beyond which the inefficiency degree diverges measurably. We show that Bitcoin markets have become more efficient after the first-wave COVID era and then the nature of market segmentation has played a less important role, levelling the cross-market difference and thus reducing the potential for arbitrage.
ABSTRACT
We examine whether Bitcoin can act as a safe haven against adverse movements of stock and bond assets in five major economies during the COVID-19 bear market. The empirical analyses are conducted using a Bayesian panel VAR method that captures potential interaction and heterogeneity across country/region-segmented markets. We find that Bitcoin in each a given economy contributes to diversification benefits and/or risk mitigation both within and across borders, while its role against traditional assets varies among different economies. We also show that the COVID-19 outbreak alters the role of Bitcoin in our target segmented markets except for the US.