Altcoins as safe havens for bitcoin investors

Jin Cai and Gerard Pinto

Studies in Economics and Finance, 2024, vol. 41, issue 5, 1191-1205

Abstract: Purpose - This paper aims to improve how investors can better manage their exposure to bitcoin (BTC), given the growing importance of BTC and the accompanying high volatility of BTC. This paper tests whether altcoins can serve as safe havens and diversifiers against exposure to BTC. Design/methodology/approach - Using daily returns of altcoins and BTC from 2014 to early 2022, this paper examines the relationship between altcoins and BTC in a GARCH regression framework. Findings - This paper finds that altcoins act as reliable safe havens during periods of extremely negative BTC returns and provide BTC investors with diversification benefits during normal periods. The safe haven effect of altcoins is superior to that of conventional assets. This paper presents evidence that this safe haven property of altcoins can be attributed to the informational efficiency channel, which arose from the increased adoption of BTC by institutional investors. Research limitations/implications - The study uses a data set from 2014 to early 2022. While the sample is among the largest samples in the literature on crypto assets and includes adequate BTC tail events to test the hypotheses, it may not capture more recent changes in the crypto markets. Practical implications - The findings suggest that BTC investors can enjoy diversification and safe haven protections by including altcoins in their portfolios. Originality/value - This paper’s focus on alternative cryptocurrencies (altcoins) as potential diversifiers and safe havens is original. The hypothesis about altcoins being better alternatives during extreme negative movements in BTC prices is a unique contribution. The test of the role of the information efficiency channel further enhances the paper’s originality.

Keywords: Bitcoin; Altcoins; Cryptocurrencies; Hedging; E42; F31; G1; G2 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-01-2024-0026

DOI: 10.1108/SEF-01-2024-0026

Access Statistics for this article

Studies in Economics and Finance is currently edited by Prof Niklas Wagner

More articles in Studies in Economics and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().