Can cryptocurrencies hedge oil price fluctuations? A pandemic perspective

Barbara Będowska-Sójka and Agata Kliber

Energy Economics, 2022, vol. 115, issue C

Abstract: The article aims to verify whether cryptocurrencies can hedge extreme price movements in Brent crude oil. The COVID-19 pandemic revealed that oil prices are heavily influenced by economic uncertainty and the mobility factor. We analyse Brent crude oil prices from February 10, 2020, to February 10, 2022. We consider Bitcoin, BNB, Ether, Tether, and USD Coin, the top five cryptocurrencies by market capitalization, as possible hedges. We explore their potential to protect oil investments using two approaches. The first focuses on price movement, and the second one on minimizing portfolio volatility. We use three modelling techniques: asymmetric causality in prices, a threshold vector-autoregressive model for returns, and dynamic conditional correlation analysis. We show that while stablecoins provide the best protection against downward movements in oil prices, they do not reduce investment volatility.

Keywords: Cryptocurrencies; Brent oil; Stablecoins; Threshold VAR; Asymmetric causality; DCC-MSV (search for similar items in EconPapers)
JEL-codes: C13 C32 C58 G15 G23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322004893

DOI: 10.1016/j.eneco.2022.106360

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