Gold, bitcoin and the financial fear gouge
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Gil Cohen [1]
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[1] Western Galilee College
Western Galilee College
Israel
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- Localización: Economics and Business Letters, ISSN-e 2254-4380, Vol. 13, Nº. 3, 2024, págs. 132-140
- Idioma: inglés
- Enlaces
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Resumen
Our study investigates the hedging ability of Gold and Bitcoin to hedge against financial market crashes. We also examined the ability of the VIX fear gouge to improve the ability of those financial assets to hedge financial risks. We found a positive dependency between the current daily prices of Gold and Bitcoin with a stronger impact of Gold on Bitcoin than vice versa. We also find that in recent years (2021-2023), Gold price changes are negatively correlated to yesterday's price change of the S&P500 a day before and positively correlated to yesterday's NASDAQ price change. In comparison, the same phenomenon is valid for Bitcoin in prior years (2018-2020). These results emphasize that Gold has replaced Bitcoin as the primary hedging tool. We attribute this change to the recent rise in interest rates and inflation expectations, coupled with the increasing involvement of institutional investors in the cryptocurrency market. Additionally, technological advancements have similarly influenced both the cryptocurrency and stock markets. Moreover, we documented that the best hedging ability of Gold is when the VIX gouge index is between 20-30, indicating a high fear in the market. However, its ability as a hedging tool deteriorated when the daily VIX score was extremely high (above 30) and lower than 20. The VIX score did not contribute anything to the ability of Bitcoin to hedge against financial market crashes.
