Is Bitcoin a Safe Haven for US Equity Market? --A Comparison with Gold and the Dollar

Research Article
Open access

Is Bitcoin a Safe Haven for US Equity Market? --A Comparison with Gold and the Dollar

Jiawen Hu 1* , Ziying Zhang 2 , Yubo Gao 3 , Shengduo Chen 4
  • 1 University of London—Singapore Institute of Management, Singapore    
  • 2 Business School, University of Sydney, NSW, 2006, Australia    
  • 3 University College London, London, WC1E 6BT, UK    
  • 4 Management School, University of Stirling, FK9 4LA, Scotland, UK    
  • *corresponding author jhu011@mymail.sim.edu.sg
Published on 21 March 2023 | https://doi.org/10.54254/2754-1169/3/2022834
AEMPS Vol.3
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-15-7
ISBN (Online): 978-1-915371-16-4

Abstract

This paper examines whether Bitcoin is an excellent hedge asset by applying the GARCH model. First, the correlation test finds that bitcoin's returns against the US dollar and gold are not significantly correlated. Also, based on comparisons across events, bitcoin returns perform more neutrally, unlike traditional hedges such as gold, which exhibit a significant negative correlation between performance and hedge in an emergency. In addition, the high volatility of Bitcoin compared to other varieties suggests that investors choosing to invest in Bitcoin will expose to high-risk return volatility. Therefore, bitcoin is more of a speculative asset than a safe haven.

Keywords:

GARCH, Volatility, Gold, Safety haven, Bitcoin

Hu,J.;Zhang,Z.;Gao,Y.;Chen,S. (2023). Is Bitcoin a Safe Haven for US Equity Market? --A Comparison with Gold and the Dollar. Advances in Economics, Management and Political Sciences,3,555-563.
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References

[1]. Nakamoto, S. (2008). Bitcoin: a peer-to-peer electronic cash system. Available at: https://Bitcoin.org/Bitcoin.pdf

[2]. Conlon, T., & McGee, R. (2020). Safe haven or risky hazard? Bitcoin during the COVID- 19 bear market. Finance Research Letters, 35, 101607.

[3]. Shahzad, S. J. H., Bouri, E., Roubaud, D., Kristoufek, L., & Lucey, B. (2019). Is Bitcoin a better safe-haven investment than gold and commodities? International Review of Financial Analysis, 63, 322-330.

[4]. Hasan, Md Bokhtiar, et al. "Are safe haven assets really safe during the 2008 global financial crisis and COVID- 19 pandemic?" Global Finance Journal 50 (2021): 100668.

[5]. Bouri, E., Gupta, R., Tiwari, A. K., & Roubaud, D. (2017). Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions. Finance Research Letters, 23, 87-95.

[6]. Bouri, E., Molnár, P., Azzi, G., Roubaud, D., & Hagfors, L. I. (2017). On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier? Finance Research Letters, 20,192- 198

[7]. Chkili, W., Rejeb, A. B., & Arfaoui, M. (2021). Does bitcoin provide hedge to Islamic stock markets for pre-and during COVID-19 outbreak? A comparative analysis with gold. Resources Policy, 74, 102407.

[8]. Luther, W . J., & Salter, A. W . (2017). Bitcoin and the bailout. The Quarterly Review of Economics and Finance, 66, 50-56.

[9]. Conlon, T., Corbet, S., & McGee, R. J. (2020). Are cryptocurrencies a safe haven for equity markets? An international perspective from the COVID- 19 pandemic. Research in International Business and Finance, 54, 101248.

[10]. Harvey, C. R. (2014). Bitcoin myths and facts. Available at SSRN 2479670.

[11]. Liew, J., Li, R. Z., Budavári, T., & Sharma, A. (2019). Cryptocurrency investing examined. The Journal of The British Blockchain Association, 8720.

[12]. Yermack, D. (2015). Is Bitcoin a real currency? An economic appraisal. In Handbook of digital currency (pp. 31-43). Academic Press.

[13]. Baur, D. G., Hong, K., & Lee, A. D. (2018). Bitcoin: Medium of exchange or speculative assets?. Journal of International Financial Markets, Institutions and Money, 54, 177- 189.

[14]. Baur, D. G., & McDermott, T. K. (2010). Is gold a safe haven? International evidence. Journal of Banking & Finance, 34(8), 1886- 1898.

[15]. Bouri, E., Shahzad, S. J. H., Roubaud, D., Kristoufek, L., & Lucey, B. (2020). Bitcoin, gold, and commodities as safe havens for stocks: New insight through wavelet analysis. The Quarterly Review of Economics and Finance, 77, 156- 164.

[16]. Klein, T., Thu, H. P., & Walther, T. (2018). Bitcoin is not the New Gold–A comparison of volatility, correlation, and portfolio performance. International Review of Financial Analysis, 59,105- 1 16.

[17]. Smales, L. A. (2019). Bitcoin as a safe haven: Is it even worth considering? Finance Research Letters, 30, 385-393.

[18]. Kindleberger, C.P., 1978. Manias, Panics and Crashes: A History of Financial Crises. Palgrave Macmillan.

[19]. Glosten, L. R., Jagannathan, R., & Runkle, D. E. ( 1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. Journal of Finance, 48, 1779– 1801.

[20]. Taleb, N. N. (2005). Fooled by randomness: The hidden role of chance in life and in the markets (Vol. 1). Random House Trade Paperbacks.

[21]. Cont, R. (2007). Volatility clustering in financial markets: empirical facts and agent-based models. In Long memory in economics (pp. 289-309). Springer, Berlin, Heidelberg.


Cite this article

Hu,J.;Zhang,Z.;Gao,Y.;Chen,S. (2023). Is Bitcoin a Safe Haven for US Equity Market? --A Comparison with Gold and the Dollar. Advances in Economics, Management and Political Sciences,3,555-563.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 6th International Conference on Economic Management and Green Development (ICEMGD 2022), Part Ⅰ

ISBN:978-1-915371-15-7(Print) / 978-1-915371-16-4(Online)
Editor:Javier Cifuentes-Faura, Canh Thien Dang
Conference website: https://www.icemgd.org/
Conference date: 6 August 2022
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.3
ISSN:2754-1169(Print) / 2754-1177(Online)

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References

[1]. Nakamoto, S. (2008). Bitcoin: a peer-to-peer electronic cash system. Available at: https://Bitcoin.org/Bitcoin.pdf

[2]. Conlon, T., & McGee, R. (2020). Safe haven or risky hazard? Bitcoin during the COVID- 19 bear market. Finance Research Letters, 35, 101607.

[3]. Shahzad, S. J. H., Bouri, E., Roubaud, D., Kristoufek, L., & Lucey, B. (2019). Is Bitcoin a better safe-haven investment than gold and commodities? International Review of Financial Analysis, 63, 322-330.

[4]. Hasan, Md Bokhtiar, et al. "Are safe haven assets really safe during the 2008 global financial crisis and COVID- 19 pandemic?" Global Finance Journal 50 (2021): 100668.

[5]. Bouri, E., Gupta, R., Tiwari, A. K., & Roubaud, D. (2017). Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions. Finance Research Letters, 23, 87-95.

[6]. Bouri, E., Molnár, P., Azzi, G., Roubaud, D., & Hagfors, L. I. (2017). On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier? Finance Research Letters, 20,192- 198

[7]. Chkili, W., Rejeb, A. B., & Arfaoui, M. (2021). Does bitcoin provide hedge to Islamic stock markets for pre-and during COVID-19 outbreak? A comparative analysis with gold. Resources Policy, 74, 102407.

[8]. Luther, W . J., & Salter, A. W . (2017). Bitcoin and the bailout. The Quarterly Review of Economics and Finance, 66, 50-56.

[9]. Conlon, T., Corbet, S., & McGee, R. J. (2020). Are cryptocurrencies a safe haven for equity markets? An international perspective from the COVID- 19 pandemic. Research in International Business and Finance, 54, 101248.

[10]. Harvey, C. R. (2014). Bitcoin myths and facts. Available at SSRN 2479670.

[11]. Liew, J., Li, R. Z., Budavári, T., & Sharma, A. (2019). Cryptocurrency investing examined. The Journal of The British Blockchain Association, 8720.

[12]. Yermack, D. (2015). Is Bitcoin a real currency? An economic appraisal. In Handbook of digital currency (pp. 31-43). Academic Press.

[13]. Baur, D. G., Hong, K., & Lee, A. D. (2018). Bitcoin: Medium of exchange or speculative assets?. Journal of International Financial Markets, Institutions and Money, 54, 177- 189.

[14]. Baur, D. G., & McDermott, T. K. (2010). Is gold a safe haven? International evidence. Journal of Banking & Finance, 34(8), 1886- 1898.

[15]. Bouri, E., Shahzad, S. J. H., Roubaud, D., Kristoufek, L., & Lucey, B. (2020). Bitcoin, gold, and commodities as safe havens for stocks: New insight through wavelet analysis. The Quarterly Review of Economics and Finance, 77, 156- 164.

[16]. Klein, T., Thu, H. P., & Walther, T. (2018). Bitcoin is not the New Gold–A comparison of volatility, correlation, and portfolio performance. International Review of Financial Analysis, 59,105- 1 16.

[17]. Smales, L. A. (2019). Bitcoin as a safe haven: Is it even worth considering? Finance Research Letters, 30, 385-393.

[18]. Kindleberger, C.P., 1978. Manias, Panics and Crashes: A History of Financial Crises. Palgrave Macmillan.

[19]. Glosten, L. R., Jagannathan, R., & Runkle, D. E. ( 1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. Journal of Finance, 48, 1779– 1801.

[20]. Taleb, N. N. (2005). Fooled by randomness: The hidden role of chance in life and in the markets (Vol. 1). Random House Trade Paperbacks.

[21]. Cont, R. (2007). Volatility clustering in financial markets: empirical facts and agent-based models. In Long memory in economics (pp. 289-309). Springer, Berlin, Heidelberg.