Safe haven opportunities for cryptocurrencies in geopolitically risky environments

Ali Fereydooni and Ehsan Hajizadeh

Applied Economics, 2024, vol. 56, issue 58, 8378-8393

Abstract: Finding suitable safe haven opportunities to protect emerging investments, such as cryptocurrencies, from external factors, such as Geopolitical risk, is a major concern for investors. Recognizing safe havens for these assets can help investors and traders manage risk, stabilize their portfolios, diversify their investments, and preserve capital against Geopolitical risk. To find the safe havens for cryptocurrencies regarding Geopolitical risk, this study proposes an approach to identifying the most suitable safe havens for cryptocurrencies highly affected by Geopolitical risk. First, the study identifies the cryptocurrencies that are more influenced by Geopolitical risk than others; by this, the assets that require hedging are discovered. Then, a new method, quantile-on-quantile regression, is employed to test the hedging ability of multiple assets from different markets. Once the outcomes of the quantile-on-quantile regression are cleared, the hedge effectiveness index by dynamic conditional correlation GARCH is calculated to validate the results. Both methods yield similar results, suggesting that the Forex market and stock indexes are the most suitable options as safe havens for cryptocurrencies. The study also finds that assets from the energy sector of the commodity market, such as Crude Oil and Natural Gas, are the weakest safe haven options.

Date: 2024
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DOI: 10.1080/00036846.2023.2290592

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