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New research casts doubt over claims cryptocurrencies’ are immune to economic risks

24 Jun 2024 2 minute read
Cryptocurrencies exist outside the world of banking

New research suggests that claims cryptocurrencies are immune to economic risks should be taken with caution.

Research carried out by a team of international academics looked at how connected cryptocurrency prices are to factors such as the stock market and oil volatility, as well as how turbulent periods such as the COVID-19 pandemic and the Ukraine war affected cryptocurrency behaviour.

The research was carried out by academics from Bangor Business School, Wales, Poznań University of Economics and Business, Poland, the Nicolaus Copernicus University, Poland and Montpellier University, France.

Risk areas

Dr Danial Hemmings from Bangor Business School said, “By using various indices covering diverse risk areas, from geopolitics and economic uncertainty to Crude Oil and Gold Volatility indices and using a wide portfolio of cryptocurrencies, we sought to compare the significance and size of various risk transmissions between the pricing of crypto assets and the real economy.

“One of the principal promises of crypto assets has been their ability to hedge risks, and what we found is that while the pricing of cryptocurrencies remains largely disconnected from economic risks, in terms of volatility the ripple effect on cryptocurrencies did intensify during turbulent periods such as the COVID-19 outbreak or the Ukraine war.”

Significant

These findings are significant as they emphasise the nuance in the hedge-potential of crypto assets.

“This should have implications for the diversification strategies of investors, as well as inform the debate around the regulation of crypto,” explains Dr Hemmings.

“Policymakers and investors should be aware that while crypto investments appear to serve as a good hedging instrument during normal economic conditions, their hedging ability in relation to certain risk factors is distorted or weakened in periods of economic turbulence, as evidenced during the COVID-19 pandemic and the Russian invasion of Ukraine.”

The full paper is available in the International Review of Financial Analysis 94 (2024) here

 


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blc
blc
20 days ago

The idealistic promises of what was initially envisioned as decentralised currency turned out to be yet another vehicle for making the rich even richer. Just like NFTs that followed, and just like the current (over)hype around “AI”. (It’s not “intelligent” at all, by the way – ChatGPT is basically your phone’s “predictive text” on steroids. And just like NFTs and crypto, it needs an ungodly amount of energy to sustain it.)

Who’d have thought that an unregulated investment market is susceptible to economic risks.

Last edited 20 days ago by blc
Karl
Karl
20 days ago

Bitcoin, the currecny for the frauster. Every week a fake email telling me how much bitcoin I got drops into my junk box and the ones trying to distort money too, with Bitcoin payment demands. There is no currency that does not have issues. Difference is the protection regular currencies have within the sytem and they are not burning the environment with mining computers on day and night. We have an energy shortage and the digital decentralised currencies are screwed.

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