Hedging and safe-haven features of cryptocurrencies: A comparative analysis of stablecoins and non-stablecoins
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This study examines the hedging and safe-haven capability of stablecoins and non-stablecoins for the G7 and BRICS stock and fiat currencies. The study uses dynamic conditional correlation generalized autoregressive conditional heteroskedasticity (DCC-GARCH) model to analyse portfolios formed using pairs of cryptocurrencies and traditional assets. Initial results suggest that stablecoins are potential hedging instruments against the G7 and BRICS stocks and fiat currencies, while non-stablecoins are potentially pure diversifiers. The study’s empirical evidence supports these findings, suggesting that stablecoins are mostly hedging and safe-haven assets for the G7 and BRICS stocks, while non- stablecoins are pure diversifiers. However, the two categories of cryptocurrencies possess safe-haven capability for the G7 and BRICS currencies. These results did not change significantly during the Covid- 19 indicating consistency in the hedging and safe-haven behaviour of cryptocurrencies. The study recommends separate treatment for sta- blecoins and non-stablecoins for policy, investment and empirical enquiries.
Abstract
This study examines the hedging and safe-haven capability of stablecoins and non-stablecoins for the G7 and BRICS stock and fiat currencies. The study uses dynamic conditional correlation generalized autoregressive conditional heteroskedasticity (DCC-GARCH) model to analyse portfolios formed using pairs of cryptocurrencies and traditional assets. Initial results suggest that stablecoins are potential hedging instruments against the G7 and BRICS stocks and fiat currencies, while non-stablecoins are potentially pure diversifiers. The study’s empirical evidence supports these findings, suggesting that stablecoins are mostly hedging and safe-haven assets for the G7 and BRICS stocks, while non- stablecoins are pure diversifiers. However, the two categories of cryptocurrencies possess safe-haven capability for the G7 and BRICS currencies. These results did not change significantly during the Covid- 19 indicating consistency in the hedging and safe-haven behaviour of cryptocurrencies. The study recommends separate treatment for sta- blecoins and non-stablecoins for policy, investment and empirical enquiries.