Investing during a Fintech revolution: The hedge and safe haven properties of Bitcoin and Ethereum

Abstract

Global financial markets have witnessed significant transformations in response to the worldwide spread of the Covid-19 pandemic, resulting in heightened risk and alterations in inter-market relationships. Both cryptocurrency markets and conventional equity markets have been influenced by these changes. This study aims to investigate the potential hedging and safe haven benefits of Bitcoin and Ethereum against risks in Asian emerging stock markets under various Covid-19 pandemic contexts including the onset of the pandemic, varying levels of panic, the extent of media attention, and sentiment analysis. Utilizing the dynamic correlation coefficients derived from the DCC-GARCH methodology, our analysis indicates that, both Bitcoin and Ethereum do not effectively serve as hedges or safe havens for major Asian emerging stock markets during the Covid-19 outbreak. These results remain robust during more extreme periods characterized by high panic, intense media attention, and negative sentiment. Nevertheless, an noteworthy exception is the case where Ethereum exhibits strong hedging properties specifically in the context of the Pakistan equity market. Recognizing these unique hedge and safe haven potential of cryptocurrencies can contribute to enhancing the effectiveness of investment strategies and risk management practices during periods of market turbulence.