Is digital gold a hedge, safe haven, or diversifier? An analysis of cryptocurrencies, DeFi tokens, and NFTs

Abstract

The crypto assets market is growing rapidly, exposing investors to new risks. As a result, finding viable candidates to hedge and diversify crypto portfolios is a critical and timely topic. In this paper, we explore the potential of gold-backed cryptocurrencies as safe haven assets in the context of building a diversified digital assets portfolio. Empirically, we investigate the financial properties (diversification, safe haven, and hedging capabilities) of two gold-backed cryptocurrencies against the three main digital assets categories, i.e. traditional cryptocurrencies, Non-Fungible Tokens (NFTs), and Decentralized Finance (DeFi) tokens, considering major external and internal crises. We also estimate the hedge ratios and the hedging effectiveness of the considered pairs. Overall, our findings indicate that the examined gold-backed cryptocurrencies are good diversifiers, with varying hedging, and safe haven properties depending on the nature of the crises, such as the COVID-19 pandemic and the Russia–Ukraine War, as well as the digital asset category considered. Several financial implications for investors and policymakers are proposed and discussed.