Amid global economic turmoil and crypto market swings, new research sheds light on which assets may serve as safe havens from bitcoin volatility. The study, titled “Safe Haven for Bitcoin: Digital and Physical Gold or Currencies?” and published in the Journal of Theoretical and Applied Electronic Commerce Research, provides a comprehensive analysis of gold, major fiat currencies, and stablecoins as diversification options for bitcoin.
The researchers utilized an advanced econometric framework using adaptive Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models to measure dynamic correlations, hedge ratios, and portfolio weight strategies. Their findings reveal that while no asset offers absolute insulation, certain stablecoins and fiat currencies, especially the Japanese yen (JPY), its stablecoin counterpart GYEN, and the Swiss franc-backed Crypto Holding Frank Token (CHFT), stand out as particularly resilient options.
What assets can safely diversify bitcoin portfolios?
Which assets can serve as effective safe havens for bitcoin, particularly in times of economic crisis? The research considered a comprehensive set of diversification assets: gold (XAU), its tokenized version (XAUT), four major fiat currencies (EUR, GBP, CHF, JPY), and their corresponding highest-cap stablecoins (EURS, GBPU, CHFT, GYEN).
Through a combination of adaptive GARCH modeling and multivariate techniques—namely GO-GARCH, corrected dynamic conditional correlation (cDCC), asymmetric dynamic conditional correlation (ADCC), and its corrected variant (cADCC)—the authors established that all the tested assets serve as effective diversifiers under varying market conditions. However, the most consistent and cost-efficient hedging was observed with CHFT, GBPU, and GYEN.
The analysis showed that CHFT and XAUT had the lowest average hedge ratios, indicating minimal cost in protecting bitcoin holdings. Furthermore, GYEN recorded the lowest correlation with bitcoin at -0.0668, which suggests its potential as more than just a diversifier—possibly a true safe haven during high-stress scenarios.
How do global economic shocks affect diversification effectiveness?
The study closely examined the impact of major economic disruptions, including the COVID-19 pandemic, the Russia–Ukraine war, the collapse of Silicon Valley Bank, and several cryptocurrency-specific events like the LUNA crash and FTX bankruptcy, on bitcoin’s volatility and correlations with diversification assets.
The time-varying correlation analysis revealed significant fluctuations that aligned with these global shocks. For example, the correlation between bitcoin and gold turned negative during May–June 2021 and again in mid-2022, before stabilizing into a positive relationship. In contrast, the correlation between bitcoin and gold-backed stablecoins like XAUT was more frequently negative throughout the sample period, signaling stronger risk mitigation characteristics.
Similar patterns were observed with fiat-backed stablecoins. GYEN and CHFT maintained more consistent and negative correlations with bitcoin compared to their fiat equivalents (JPY and CHF), making them more stable choices in portfolio construction, especially during crises.
The authors concluded that these dynamic behaviors underscore the importance of employing adaptive portfolio strategies. Static asset allocations fail to capture the full scope of risk exposure, especially when financial markets are subject to sudden shocks and evolving correlations.
What are the implications for long-term investors and policymakers?
From a long-term investment strategy perspective, the study found that bitcoin maintains more stable portfolio weight ratios when paired with traditional assets like gold, the euro, the pound, the Swiss franc, and the yen. These combinations demonstrated reduced volatility, making them more appealing to investors with lower risk tolerance.
However, for cost-efficient hedging and effective short-term diversification, particularly under volatile or crisis conditions, stablecoins like CHFT and GBPU emerged as more advantageous. They allow for greater hedging flexibility with lower allocation requirements, offering a leaner portfolio design.
For policymakers, the results provide a basis for regulatory focus on stablecoins. Given their increasing role not just in the metaverse and decentralized finance but also in risk mitigation strategies, the study highlights the potential of stablecoins in enhancing financial system resilience. Policymakers could leverage this data to guide stablecoin framework development, focusing on maintaining their stability and liquidity during macroeconomic disruptions.
Diversification must be tailored to investment timelines and prevailing market conditions, the study asserts. Dynamic portfolio strategies that respond to both global and crypto-specific events are essential. Investors should reassess portfolio weights regularly, especially during market turbulence, to mitigate bitcoin’s extreme volatility and improve risk-adjusted returns.