https://orcid.org/0000-0002-4222-1173
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ABSTRACT
Given the broad scope of Ethereum and the wide range of its decentralized applications, this paper investigates its hedging and safe haven capabilities against main fiat currencies, stock and bond indices in the US and Europe, and crude oil and gold markets. We use daily data from January 2016 until February 2021 and apply percentile regressions and crisis event interaction analysis by selecting four worldwide events including US presidential elections, the Brexit referendum, and COVID-19. We reveal that Ethereum does not act as a hedge or a safe haven against fiat currencies, stock and bond indices, and gold. However, it does act as a strong safe haven against crude oil in calm and turbulent periods and against European bonds during market turbulence. The study provides insights to regulators and investors into the potential role of Ethereum in investment decision-making and protecting financial market participants in the US and EU.
Acknowledgement
We would like to thank Dr. Elie Bouri, Professor of Finance at the Lebanese American University, for his support and the insights he provided us while conducting this research.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Correction Statement
This article has been republished with minor changes. These changes do not impact the academic content of the article.
Notes
1. The announcements of Tesla’s CEO, Elon Musk keep on moving markets. He revealed in July 2021 that the only considerable personal investments he made outside Tesla and SpaceX were in bitcoin, Ethereum, and Dogecoin (https://edition.cnn.com/2021/07/21/tech/elon-musk-jack-dorsey-cryptocurrency/index.html). Furthermore, Mastercard positively engaged with the crypto industry over the last few years. It made a significant investment in an Ethereum technology company, ConsenSys in April 2021 as a plan to enable crypto payments for its card by the end of the year. In end of July 2021, the payments giant announced the launching of digital asset-focused start-up incubator baptised Start Path, beginning with seven cryptocurrency-based companies (https://cryptobriefing.com/mastercard-launches-startup-accelerator). Many other leading tech companies such as Microsoft, Amazon, Facebook, and Google stepped into cryptoassets. In addition, Apple adjusted its anti-cryptocurrency policy in 2014, which reopened the door to bitcoin and crypto application developers and set the firm on a new path towards engaging in cryptocurrencies. Although Apple did not voice any intention to launch a cryptocurrency exchange nor add any bitcoin or other cryptocurrency to its balance sheet, its CEO, Jennifer Bailey, announced that the company was watching cryptocurrencies and expressed serious interest to embrace these alternative investments as they have long-term potential (https://www.cnbc.com/2019/09/05/apple-sees-long-term-potential-for-cryptocurrency-exec-says.html).
5. Davidson, P., and K. McCoy. ‘Trump, turmoil: The top 10 business stories in 2016’. USA today, 28 December 2016, https://www.usatoday.com/story/money/business/2016/12/28/trump-turmoil-top-10-business-stories-2016/95903786/. Accessed on 30 March 2021.
9. The index is available at: http://policyuncertainty.com/infectious_EMV.html. It is based on a textual analysis of four sets of terms, namely E: economic, economy, financial; M: ‘stock market’, equity, equities, ‘Standard and Poors’; V: volatility, volatile, uncertain, uncertainty, risk, risky; ID: epidemic, pandemic, virus, flu, disease, coronavirus, MERS, SARS, Ebola, H5N1, H1N1, and then obtaining daily counts of newspaper articles that contain at least one term in each of E, M, V, and ID across approximately 3000 US newspapers.
10. Stationarity and multicollinearity tests are performed pre-regression while normality and heteroskedasticity tests of the residuals are implemented post-regression. The results of the augmented Dicky-Fuller test for stationarity reveal that all return series are stationary. Additionally, the Breush-Pagan-Godfrey test for heteroskedasticity shows that the residuals are homoskedastic in both the US and EU samples. The Jarque-Bera test for normality shows that the residuals follow a non-normal distribution in both the US and the EU models. However, the non-normality is not a matter in this research. Given the large sample size, the residuals follow an asymptotically normal distribution (Brooks, Citation2008).
11. Consistent with Baur et al. (Citation2018), Bouri, Shahzad, Roubaud (Citation2020) and other studies, low R-squared values are normal for regression models including cryptocurrencies due to their high volatilities.