Redefining Asset Class: Is Bitcoin a Hedge, a Diversifier, or a Safe Haven Asset?

Abstract

Cryptocurrencies and crypto assets have tremendously gained traction in adoption and mentions over the past decade. Supposedly a disruptive force to traditional finance, cryptocurrency is considered an entirely different asset class. To look at how cryptocurrency, namely Bitcoin, compares against other traditional assets, this study aims to answer the question whether Bitcoin is a hedge, a diversifier, or a safe haven asset against traditional assets such as stocks, bonds, and gold. An ordinary least squares regression model is used to study this relationship. The results found that there is no evidence that Bitcoin is a hedge for stocks, bonds, and gold, suggesting that Bitcoin is a diversifier for these three assets. The results also found that there is no evidence that Bitcoin is a safe haven asset for stocks and gold but some evidence that it is one for gold. Given these broad observations, the limitations of using an ordinary least squares on a time series renders these results inconclusive and further research is recommended to ascertain these findings.