A crypto safe haven against Bitcoin
No TL;DR found
Abstract
• Bitcoin's excess volatility requires a crypto safe haven for investors. • Hypothesize that stablecoins provide stability and a safe haven for Bitcoin investors. • Stablecoins are a safe haven with respect to Bitcoin but not stable at all times. The design of Bitcoin is closely related to gold which has led to the idea that Bitcoin has gold-like features such as being a store of value and a safe haven. However, given Bitcoin's extreme volatility investors may rather need a safe haven against Bitcoin. We hypothesize that stablecoins provide such a safe haven and analyze high-frequency price changes of the largest stablecoins. We find that they act as safe havens, and Tether showing the strongest effect. The results demonstrate that Bitcoin investors seek out stablecoins when Bitcoin experiences extreme negative prices changes. Since stablecoins react to such price changes they are not stable at all times.