Any port in a storm: Cryptocurrency safe-havens during the COVID-19 pandemic

Shaen Corbet,Yang (Greg) Hou,Yang Hu,Charles Larkin,Les Oxley

doi:10.1016/j.econlet.2020.109377

Abstract

Controlling for the polarity and subjectivity of social media data based on the development of the COVID-19 outbreak, we analyse the relationships between the largest cryptocurrencies and such time-varying realisation as to the scale of the economic shock centralised within the rapidly-escalating pandemic. We find evidence of significant growth in both returns and volumes traded, indicating that large cryptocurrencies acted as a store of value during this period of exceptional financial market stress. Further, cryptocurrency returns are found to be significantly influenced by negative sentiment relating to COVID-19. While not only providing diversification benefits for investors, results suggest that these digital assets acted as a safe-haven similar to that of precious metals during historiccrises.

Highlights

The onset of the COVID-19 pandemic has resulted in many variants of international response across social, epidemiological and economic frontiers
Such techniques allow for analysis of sentiment based on the severity of the COVID-19 pandemic, and as to interlinkages between such sentiment and cryptocurrencies as a safe-haven asset in such time of extreme financial market panic
Rt−j represents the lagged value of the selected cryptocurrency returns, j number of periods before Rt is observed. b2Vt represents the natural logarithm of cryptocurrency volumes traded, while b3U SDt represents the value of the GBP/USD on the same day on which the cryptocurrency returns were generated

Summary

Introduction

The onset of the COVID-19 pandemic has resulted in many variants of international response across social, epidemiological and economic frontiers. Such techniques allow for analysis of sentiment based on the severity of the COVID-19 pandemic, and as to interlinkages between such sentiment and cryptocurrencies as a safe-haven asset in such time of extreme financial market panic.

Results

Conclusion