Gold and the herd of Cryptos: Saving oil in blurry times

Abstract

This paper assesses the effectiveness of a broad set of 1066 active and continuously traded cryptocurrencies as a safe haven instrument against extreme oil price movements, in comparison to the corresponding roles of gold. The uncertainty for the oil market during the COVID-19 pandemic and the subsequent Russia–Ukraine conflict set the tone for natural experiments for our study. We use a trail-blazing dynamic generalized autoregressive score model to estimate the tail riskiness of the potential safe haven assets from January 1, 2020, to September 30, 2022. By estimating the risk exposure of all cryptocurrency assets, we determine top ten safest assets for investment. Our results show the emergence of new safe haven cryptocurrencies, which have previously been ignored by the academic literature and policy makers alike. Intriguingly, our findings reveal that gold has been replaced by altcoins as the safest assets during both the COVID-19 pandemic and the Russia–Ukraine conflict. At this instance, our findings suggest that Bitcoin provides lengthier safe haven properties than gold for oil returns in both periods. However, the safe haven properties of gold and cryptocurrencies are time varying. Last but not least, we introduce a new Cryptocurrency Tail Risk Index (CTRI) that captures the risk exposure of cryptocurrency market, as a whole. Our results suggest that investment in numerous cryptocurrencies provides lengthier safe haven properties than investing in gold alone.