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Cryptocurrency as a safe haven for investment portfolios amid COVID-19 panic cases of Bitcoin, Ethereum and Litecoin

Author

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  • Mutaju Isaack Marobhe

Abstract

Purpose - This article examines the susceptibility of cryptocurrencies to coronavirus disease 2019 (COVID-19) induced panic in comparison with major stock indices. Design/methodology/approach - The author employs the Bayesian structural vector autoregression to examine the phenomenon in Bitcoin, Ethereum and Litecoin from 2nd January 2020 to 30th June 2021. A similar analysis is conducted for major stock indices, namely S&P 500, FTSE 100 and SSE Composite for comparison purposes. Findings - The results suggest that cryptocurrencies returns suffered immensely in the early days of the COVID-19 outbreak following declarations of the disease as a global health emergency and eventually a pandemic in March 2020. However, the returns for all three cryptocurrencies recovered by April 2020 and remained resistant to further COVID-19 panic shocks. The results are dissimilar to those of S&P 500, FTSE 100 and SSE Composite values which were vulnerable to COVID-19 panic throughout the timeframe to June 2021. The results further reveal strong predictive power of Bitcoin on prices of other cryptocurrencies. Research limitations/implications - The article provides evidence to support the cryptocurrency as a safe haven during COVID-19 school of thought given their resistance to subsequent shocks during COVID-19. Thus, the author stresses the need for diversification of investment portfolios by including cryptocurrencies given their uniqueness and resistance to shocks during crises. Originality/value - The author makes use of the novel corona virus panic index to examine the magnitude of shocks in prices of cryptocurrencies during COVID-19.

Suggested Citation

  • Mutaju Isaack Marobhe, 2021. "Cryptocurrency as a safe haven for investment portfolios amid COVID-19 panic cases of Bitcoin, Ethereum and Litecoin," China Finance Review International, Emerald Group Publishing Limited, vol. 12(1), pages 51-68, November.
    • Handle: RePEc:eme:cfripp:cfri-09-2021-0187
    DOI: 10.1108/CFRI-09-2021-0187
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    Cited by:

    1. Wei, Yu & Wang, Yizhi & Lucey, Brian M. & Vigne, Samuel A., 2023. "Cryptocurrency uncertainty and volatility forecasting of precious metal futures markets," Journal of Commodity Markets, Elsevier, vol. 29(C).
    2. Wang, Yizhi & Wei, Yu & Lucey, Brian M. & Su, Yang, 2023. "Return spillover analysis across central bank digital currency attention and cryptocurrency markets," Research in International Business and Finance, Elsevier, vol. 64(C).

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