Are Stablecoins Safe Havens for Traditional Cryptocurrencies? An Empirical Study during the COVID-19 Pandemic

• Main Authors: Yao Xie, Sang Baum Kang, Jialin Zhao
• Format: Article
• Language: English
• Published: Tuwhera Open Access Publisher 2021-03-01
• Series: Applied Finance Letters
• Online Access: https://ojs.aut.ac.nz/applied-finance-letters/article/view/342

We investigate whether stablecoins are safe havens for traditional cryptocurrencies with fresh evidence from the recent crisis period of the COVID-19 pandemic. Our results support the safe-haven properties of Tether for both before and during the pandemic. For Digix, a gold-backed stablecoin with relatively small market capitalization, we find a change in characteristics before and during the pandemic, but do not find statistically significant evidence for its safe-haven properties. Furthermore, we document that, when considering the economic benefits and costs of adding safe-haven assets into cryptocurrency portfolios, the one with Tether outperforms both a naked portfolio and the portfolio with a traditional safe-haven asset such as gold.