Cryptocurrency as a safe haven for investment portfolios amid COVID-19 panic cases of Bitcoin, Ethereum and Litecoin

Abstract

PurposeThis article examines the susceptibility of cryptocurrencies to coronavirus disease 2019 (COVID-19) induced panic in comparison with major stock indices.Design/methodology/approachThe author employs the Bayesian structural vector autoregression to examine the phenomenon in Bitcoin, Ethereum and Litecoin from 2nd January 2020 to 30th June 2021. A similar analysis is conducted for major stock indices, namely S&P 500, FTSE 100 and SSE Composite for comparison purposes.FindingsThe results suggest that cryptocurrencies returns suffered immensely in the early days of the COVID-19 outbreak following declarations of the disease as a global health emergency and eventually a pandemic in March 2020. However, the returns for all three cryptocurrencies recovered by April 2020 and remained resistant to further COVID-19 panic shocks. The results are dissimilar to those of S&P 500, FTSE 100 and SSE Composite values which were vulnerable to COVID-19 panic throughout the timeframe to June 2021. The results further reveal strong predictive power of Bitcoin on prices of other cryptocurrencies.Research limitations/implicationsThe article provides evidence to support the cryptocurrency as a safe haven during COVID-19 school of thought given their resistance to subsequent shocks during COVID-19. Thus, the author stresses the need for diversification of investment portfolios by including cryptocurrencies given their uniqueness and resistance to shocks during crises.Originality/valueThe author makes use of the novel corona virus panic index to examine the magnitude of shocks in prices of cryptocurrencies during COVID-19.