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DEVELOPMENT ECONOMICS

Is bitcoin a diversifier, hedge or safe haven for traditional and alternate asset classes?

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Article: 2156092 | Received 29 Mar 2022, Accepted 04 Dec 2022, Published online: 13 Dec 2022
 

Abstract

Given the skyrocketing returns earned by bitcoin, it has received widespread attention as an investment asset. The shocks experienced by stock and bond markets over time and especially during the COVID-19 pandemic has led to an evaluation of bitcoin as a wealth protection asset, a role that gold has played until now. The current paper tests the hedging and safe haven properties of bitcoin in a broad portfolio of both developed and emerging markets stocks, bonds and real estate over a period of 10 years and during COVID-19 pandemic. Using a DCC-GARCH method, the study finds weak hedge and safe haven benefits of bitcoin. The results of the study establish that there is still a long way to go before bitcoin displays a strong safe haven behavior. However, there is a need for portfolio managers to become more cognizant about bitcoin given its potential to protect their portfolios.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received no direct funding for this research.