Are stablecoins truly diversifiers, hedges, or safe havens against traditional cryptocurrencies as their name suggests?
By Gangjin Wang, Xin-yu Ma, Hao-yu Wu. 2020
148 citations recorded by the source corpus.
Abstract We study the diversifier, hedge, and safe haven properties of stablecoins against traditional cryptocurrencies. Using the DCC-GARCH model and dummy variable regression, we examine the risk-dispersion abilities of USD-pegged and gold-pegged stablecoins against traditional cryptocurrencies, and also compare their risk-dispersion abilities with their underlying assets. The empirical results show that (i) stablecoins can serve as safe havens in specific situations, although most act merely as an effective diversifier in normal market conditions; (ii) gold-pegged stablecoins perform worse as safe havens than USD-pegged ones, but both of them perform better than their corresponding underlying assets, and (iii) the safe haven property of stablecoins changes across market conditions. The above results are robust when using time-varying copula models. We further evaluate the risk management applications of stablecoins by analyzing mixed cryptocurrency-stablecoin portfolios, finding evidence of USD-pegged stablecoins performing better than gold-pegged stablecoins in extreme risk reductions. Our work provides important insights into diversification for cryptocurrency investors.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/4764a63780a23c4da8eb6cd2c5837f4a24babb81
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Citations in the corpus
- How stable are stablecoins? (2021, unknown): “Similar results are documented in Wang, Ma, and Wu (2020), who further show that gold-pegged stablecoins perform worse as safe havens against traditional cryptocurrencies than USD-pegged stablecoins.”
- The Influence of Stablecoin Issuances on Cryptocurrency Markets (2020, result): “He further reports that Bitcoin price drops raise Tether trading volume, which suggests that the stablecoin is used as a safe haven – an explanation also suggested by other studies (Baur and Hoang, 2020; Wang et al., 2020).”