Abstract

Having a place of haven or a hedge against potential losses is an important feature of any investment strategy, but this is especially true during times of turmoil in the market. Bitcoin has demonstrated that it has the potential to become a new safe haven or hedging asset due to the fact that its value soared between 2010 and 2013 (during the Euro debt crisis and the banking crisis in Cyprus), and Bitcoin shares certain parallels with gold. In this study, we used the regression model developed by Baur and Lucey (2010) to investigate whether Bitcoin possesses the same hedging and safe-haven properties as gold against stock markets in the United States, the United Kingdom, China, Japan, and developed markets (world index) when extreme market conditions are present. The primary finding from the entire time from 2011-2022 implies that Bitcoin does not demonstrate hedge and safe haven properties like gold does, even though the safe haven property of gold is vanishing. Bitcoin, in particular, does not exhibit any of the characteristics of a safe haven in any of the markets in the study, and it only has hedge characteristics in Japan’s stock market. A further implication of our research is that the properties of a hedge and a safe haven of Bitcoin may change over time. According to the findings of the subperiod, Bitcoin served as a hedge and safe haven against all markets during the cryptocurrency cycle from its beginning to its peak. In addition, when Bitcoin gets more maturity, the hedging property might disappear, while the safe-haven property may become visible in most markets. Despite the fact that Bitcoin might have aspects of a hedge and a safe haven, the findings imply that the link between bitcoin and the stock market is still fairly weak. If investors are considering utilizing Bitcoin as a hedging instrument or a safe haven, they should proceed with extreme caution.