Bitcoin: An Inflation Hedge but Not a Safe Haven

Sangyup Choi and Junhyeok Shin
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Junhyeok Shin: Yonsei Univ

No 2021rwp-185, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: During the recent COVID-19 pandemic, many commonalities shared by Bitcoin and gold raise the question of whether Bitcoin can hedge inflation or provide a safe haven as gold often does. By estimating a Vector Autoregression (VAR) model, we provide systematic evidence on the relationship among inflation, uncertainty, and Bitcoin and gold prices. Bitcoin appreciates against inflation (or inflation expectation) shocks, confirming its inflation-hedging property claimed by investors. However, unlike gold, Bitcoin prices decline in response to financial uncertainty shocks, rejecting the safe-haven quality. Interestingly, Bitcoin prices do not decrease after policy uncertainty shocks, partly consistent with the notion of Bitcoin’s independence from government authorities. We also find an interesting asymmetry in the drivers of Bitcoin price dynamics between the bullish and bearish market. The main findings hold with or without the COVID-19 pandemic episode.

Keywords: Cryptocurrencies; Bitcoin; inflation-hedging; safe-haven; gold; COVID-19 (search for similar items in EconPapers)
JEL-codes: E41 E44 F31 G10 (search for similar items in EconPapers)
Pages: 26pages
Date: 2021-03
New Economics Papers: this item is included in nep-cwa, nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (20)

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Related works:
Journal Article: Bitcoin: An inflation hedge but not a safe haven (2022)
Working Paper: Bitcoin An Inflation Hedge but Not a Safe Haven (2021)
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