Are stablecoins better safe havens or hedges against global stock markets than other assets? Comparative analysis during the COVID-19 pandemic

Abstract

This paper examines whether stablecoins act as diversifiers, hedges or safe havens against global stock markets during the COVID-19 pandemic, leveraging the DCC-GARCH model and dummy variable regression. In addition, we examine the dynamics of stablecoins' safe haven ability during the COVID-19 pandemic and diverse stages of the COVID-19 pandemic's development, and compare it with two traditional safe havens (gold and USD), as well as Bitcoin. Our findings reveal that both gold-pegged and USD-pegged stablecoins show a stronger hedging ability against global stock markets. In particular, USD-pegged stablecoins can be considered stable hedges and safe havens, especially during the different stages of the COVID-19 pandemic's development. Conversely, Bitcoin and traditional safe havens do not consistently provide stable hedge or safe haven properties.