Stablecoins as Safe Haven or Hedging Asset for Cryptocurrencies

Abstract: Due to high returns and different components from other financial assets, cryptocurrencies have gained considerable popularity regardless of their high volatility and risks. Investors may consider investing in safer assets rather than cryptocurrencies. Therefore, this paper studies the role of stablecoins as a safe haven or a hedge against cryptocurrencies. Daily data collection from November 2020 to May 2022 displayed that the stablecoins are fit as hedging assets for cryptocurrency from its decline in yields and the higher volatility. Tether is suitable as a safe-haven asset, while USD Coin and True USD are suitable as diversification assets, and Dai is suitable as both hedging and diversification assets. It is marked that the role of the stablecoin is different for each cryptocurrency. Therefore, it is advisable that investors invest in stablecoins in combination with cryptocurrencies to hedge and diversify their investments.



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