Cryptocurrencies as a Safe Haven Investment During the COVID-19 Outbreak: A Comprehensive Analysis

Amira Hakim and Eleftherios Thalassinos

European Research Studies Journal, 2023, vol. XXVI, issue 2, 729-770

Abstract: Purpose: Using the onset of the COVID-19 pandemic, this paper examines cryptocurrencies as haven investments for stocks, analyzing our time-varying realizations in response to the economic shock caused by the growing pandemic. Design/Methodology/Approach: Utilizing daily data on COVID-19 measures and daily prices for four cryptocurrencies and four stock assets throughout the year 2020, we apply both the VAR-DCC-GARCH and Wavelet Coherency models. Findings: Our paper provides new evidence that Bitcoin and Ethereum are highly correlated with the selected stocks over both short and long horizons. However, Litecoin and XRP are negatively correlated with the stocks throughout the entire COVID-19 period. We find that Bitcoin serves as a strong safe haven asset for all the selected stocks during the COVID-19 era, while Litecoin is a weak safe haven investment, and XRP has the lowest potential as a safe haven investment for all the stocks studied. Practical Implications: This study provides diversification and hedging strategies for investors and policymakers, suggesting that cryptocurrencies acted as haven investments, similar to precious metals during historic crises, and functioned like fiat money during any economic shocks that may occur. Originality Value: This article addresses a gap in the literature regarding cryptocurrencies as an alternative investment during economic disturbances, particularly in the context of the COVID-19 pandemic.

Keywords: Cryptocurrencies; stocks; safe haven; co-movement; VAR-DCC-GARCH; wavelet transform; wavelet coherency. (search for similar items in EconPapers)
JEL-codes: D53 E44 F37 G11 G15 M12 M54 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ers:journl:v:xxvi:y:2023:i:2:p:729-770

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