Bitcoin and Safe-Haven Behavior Across Market Horizons

Summary

This paper evaluates whether Bitcoin can hedge or act as a safe haven for U.S. stock indexes, motivated in part by Bitcoin’s rise following the 2016 U.S. presidential election. It distinguishes a hedge, which is negatively or weakly correlated with another asset on average, from a safe haven, which provides positive or negative returns when that asset is distressed. The analysis uses Ensemble Empirical Mode Decomposition, a noise-assisted method, to examine relationships across different time horizons.

The reported findings characterize Bitcoin’s safe-haven behavior as time-varying and primarily weak in both short- and long-term horizons. The study also reports that gold and silver lose safe-haven properties across longer horizons as their relationship with U.S. stocks changes. These results caution against treating Bitcoin or precious metals as dependable protection in every market regime. The supplied description does not provide detailed sample construction, test statistics, or out-of-sample portfolio results, so it does not establish how the findings translate into a usable hedging strategy.

Key ideas

• The paper distinguishes average hedging behavior from safe-haven behavior during another asset’s distress.
• It applies Ensemble Empirical Mode Decomposition to study Bitcoin and U.S. stock-index relationships across time horizons.
• Bitcoin’s safe-haven property varies over time and is reported as primarily weak in the short and long term.
• The study finds that gold and silver’s safe-haven properties decline across longer horizons.
• The reported relationships do not by themselves establish a reliable portfolio hedge.

Tags

# Are Trump and Bitcoin Good Partners?


# Are Trump and Bitcoin Good Partners?









During times of extreme market turmoil, it is acknowledged that there is a tendency towards "flight to safety". A strong (weak) safe haven is defined as an asset that has a significant positive (negative) return in periods where another asset is in distress, while hedge has to be negatively correlated (uncorrelated) on average. The Bitcoin's surge alongside the aftermath of Trump's win in the 2016 U.S. presidential elections has strengthened its status as the modern safe haven. This paper uses a truly noise-assisted data analysis method, termed as Ensemble Empirical Mode Decomposition-based approach, to examine whether Bitcoin can act as a hedge and safe haven for U.S. stock price index. The results document that the Bitcoin's safe-haven property is time-varying and that it has primarily been a weak safe haven in the short term and the long-term. We also demonstrate that precious metals lost their safe haven properties over time as the correlation between gold/silver and U.S. stock price declines from short-to long-run horizons.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.