Bitcoin is not the New Gold – A comparison of volatility, correlation, and portfolio performance

By Tony Klein, Hiền Phạm Thu, T. Walther. International Review of Financial Analysis, 2018

760 citations recorded by the source corpus.

Abstract Cryptocurrencies such as Bitcoin are establishing themselves as an investment asset and are often named the New Gold. This study, however, shows that the two assets could barely be more different. Firstly, we analyze and compare conditional variance properties of Bitcoin and Gold as well as other assets and find differences in their structure. Secondly, we implement a BEKK-GARCH model to estimate time-varying conditional correlations. Gold plays an important role in financial markets with flight-to-quality in times of market distress. Our results show that Bitcoin behaves as the exact opposite and it positively correlates with downward markets. Lastly, we analyze the properties of Bitcoin as portfolio component and find no evidence for stable hedging capabilities. We conclude that Bitcoin and Gold feature fundamentally different properties as assets and linkages to equity markets. Our results hold for the broad cryptocurrency index CRIX. As of now, Bitcoin does not reflect any distinctive properties of Gold other than asymmetric response in variance.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/261423156e162c51807409e605a2f3391f16483e

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Citations in the corpus

Asymmetric volatility in cryptocurrency markets: New evidence from smooth transition GARCH models (2020, neutral): “…increasing popularity of the digital currencies, there has been a growing literature in recent years analyzing the similarity in the volatility properties between cryptocurrencies and other financial assets (see e.g. Baur et al., 2018; Dyhrberg, 2016a; Bouri et al., 2017a; and Klein et al., 2018).”
Can Bitcoin be a diversifier, hedge or safe haven tool? (2019, background): “In spite of the similarities between Bitcoin and gold as a hedge and a diversifier during economic uncertainty found in the above-mentioned studies, Klein et al. (2018) found that Bitcoin behaves the exact opposite of gold.”
Should investors include Bitcoin in their portfolios? A portfolio theory approach (2020, background): “2 Klein et al (2018) show that Bitcoin offers no hedging capabilities like gold which also holds for the brad cryptocurrency index CRIX while Urquhart and Zhang (2019) show that Bitcoin can be a hedge at an intraday level for the CHF, EUR and GBP currencies.”