Are green cryptocurrencies really green? New evidence from wavelet analysis

Abstract

With growing attention and concern regarding green instruments, in this paper, we test for the dynamic connectedness of green cryptocurrencies, green investment, conventional commodities and equities using wavelet coherence and the effect of uncertainty on their co-movements from 2018 to 2023. Contrary to previous research, our findings reveal that green cryptocurrencies do not exhibit hedge or safe haven properties, instead behaving no differently than diversifiers. Furthermore, we show a significant influence of financial uncertainty on the interconnectedness between green cryptocurrencies and other assets, indicating heightened exposure during market turmoil. As a result, less emphasis on green cryptocurrencies portfolio weightings should be placed and greater emphasis on green bonds and gold at time of financial distress. Their limited risk-reducing potential should also be considered for regulatory frameworks. Additionally, we note the similarities between green cryptocurrencies and conventional counterparts, evidenced by their dynamic homogeneity with Bitcoin and Ethereum, suggesting synchronization. Consequently, conventional cryptocurrencies could serve as proxies for green counterparts in portfolio management strategies. These findings contribute to the understanding of green cryptocurrency dynamics and have implications for investment decision-making and risk management strategies in sustainable finance.