Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series

IRTG1792DP2018 015

Bitcoin is not the New Gold - A Comparison of Volatility, Correlation, and Portfolio Performance

Tony Klein
Hien Pham Thu
Thomas Walther

Cryptocurrencies such as Bitcoin are establishing themselves as an investment asset and
are often named the New Gold. This study, however, shows that the two assets could
barely be more dierent. Firstly, we analyze and compare conditional variance properties
of Bitcoin and Gold as well as other assets and nd dierences in their structure.
Secondly, we implement a BEKK-GARCH model to estimate time-varying conditional
correlations. Gold plays an important role in nancial markets with ight-to-quality in
times of market distress. Our results show that Bitcoin behaves as the exact opposite
and it positively correlates with downward markets. Lastly, we analyze the properties of
Bitcoin as portfolio component and nd no evidence for hedging capabilities. We conclude
that Bitcoin and Gold feature fundamentally dierent properties as assets and linkages to
equity markets. Our results hold for the broad cryptocurrency index CRIX. As of now,
Bitcoin does not re ect any distinctive properties of Gold other than asymmetric response
in variance.

BEKK, Bitcoin, CRIX, Cryptocurrency, Gold, GARCH, Conditional Correlation, Asymmetry, Long memory

JEL classification:
C10; C58; G11