Journal article · 2022

Can cryptocurrencies hedge oil price fluctuations? A pandemic perspective

Będowska-Sójka, B., Kliber, A.

Energy Economics, 115, 106360

DOI: 10.1016/j.eneco.2022.106360

Abstract

The article aims to verify whether cryptocurrencies can hedge extreme price movements in Brent crude oil. The COVID-19 pandemic revealed that oil prices are heavily influenced by economic uncertainty and the mobility factor. We analyse Brent crude oil prices from February 10, 2020, to February 10, 2022. We consider Bitcoin, BNB, Ether, Tether, and USD Coin, the top five cryptocurrencies by market capitalization, as possible hedges. We explore their potential to protect oil investments using two approaches. The first focuses on price movement, and the second one on minimizing portfolio volatility. We use three modelling techniques: asymmetric causality in prices, a threshold vector-autoregressive model for returns, and dynamic conditional correlation analysis. We show that while stablecoins provide the best protection against downward movements in oil prices, they do not reduce investment volatility.

Keywords: Cryptocurrencies, Brent oil, Stablecoins, Threshold VAR, Asymmetric causality, DCC-MSV

Research topics: Cryptocurrency markets · Safe havens, hedging and geopolitical risk

Presented at

Cite

@article{eneco2022_oil,
  title = {Can cryptocurrencies hedge oil price fluctuations? A pandemic perspective},
  author = {Będowska-Sójka, B. and Kliber, A.},
  year = {2022},
  journal = {Energy Economics},
  note = {115, 106360},
  doi = {10.1016/j.eneco.2022.106360}
}