article · Applied Economics
Rapid expansion in the digital asset market has exposed investors to heightened volatility, driving demand for effective tools to mitigate risk. This research investigates whether gold-backed cryptocurrencies can serve as hedges, safe havens, or diversifiers for digital portfolios. The study analyses the performance of two gold-backed digital tokens against conventional cryptocurrencies, non-fungible tokens, and decentralised finance tokens during significant market disruptions, including the COVID-19 pandemic and the Russia-Ukraine War. By evaluating hedge ratios and hedging effectiveness across these pairings, the findings establish that gold-backed tokens act consistently as good diversifiers. However, their specific capacity to provide safe haven or hedging benefits fluctuates based on the asset category examined and the precise nature of the economic or geopolitical crisis occurring.
Digital assets carry substantial financial risks and volatility. Understanding whether gold-backed tokens can protect investments during global disruptions helps investors manage risk more effectively. It also provides financial regulators and policymakers with crucial evidence on how different classes of digital assets interact during economic and geopolitical crises.
This research provides applied insights for asset managers, digital fund creators, and institutional investors seeking to construct resilient digital investment portfolios or risk management tools. Because the study measures hedge ratios and effectiveness against real market crises, the findings are applied and close to practical use for financial analysts designing cryptocurrency risk models, though the abstract does not indicate direct development of commercial software.
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The crypto assets market is growing rapidly, exposing investors to new risks. As a result, finding viable candidates to hedge and diversify crypto portfolios is a critical and timely topic. In this paper, we explore the potential of gold-backed cryptocurrencies as safe haven assets in the context of building a diversified digital assets portfolio. Empirically, we investigate the financial properties (diversification, safe haven, and hedging capabilities) of two gold-backed cryptocurrencies against the three main digital assets categories, i.e. traditional cryptocurrencies, Non-Fungible Tokens (NFTs), and Decentralized Finance (DeFi) tokens, considering major external and internal crises. We also estimate the hedge ratios and the hedging effectiveness of the considered pairs. Overall, our findings indicate that the examined gold-backed cryptocurrencies are good diversifiers, with varying hedging, and safe haven properties depending on the nature of the crises, such as the COVID-19 pandemic and the Russia–Ukraine War, as well as the digital asset category considered. Several financial implications for investors and policymakers are proposed and discussed.
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DOI: 10.1080/00036846.2023.2299217
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