The performance of cryptocurrency assets under COVID19

Natia Maisuradze

Master's thesis

Abstract:

Despite being introduced as means of payment, cryptocurrencies quickly transformed into an investment asset class. The primary appeal of cryptocurrencies for investors lies in their innovative technology, security and anonymity provision, and high returns. The achieved popularity, increased number of users and transactions, and steep rise of its value encouraged researchers to investigate cryptocurrencies’ potential to serve as diversification assets, hedges, or safe havens. The Covid-19 pandemic provided a unique opportunity to examine cryptocurrencies’ behavior during market turbulences, as they have never experienced such shocks before. This thesis aims to investigate the resilience of these alternative assets to market shocks and analyze their possible benefits for investors during financial distress. The thesis employs three methods for empirical analysis: event study, portfolio analysis, and linear regression. These approaches provide insight into the performance of cryptocurrencies during the pandemic. Specifically, they demonstrate mixed reactions of cryptocurrencies to important milestones related to Covid-19. However, portfolio analysis confirms their diversification or hedging capabilities for investors and the potential to serve as a safe haven for S&P 500, MSCI World ETF, MSCI USA Value Factor ETF, and MSCI Germany ETFs. Notably, all kinds of media coverage affected the market capitalization of cryptocurrencies. However, if included in the portfolio, they could still enhance investors’ wealth during the pandemic.

Abstract:

Despite being introduced as means of payment, cryptocurrencies quickly transformed into an investment asset class. The primary appeal of cryptocurrencies for investors lies in their innovative technology, security and anonymity provision, and high returns. The achieved popularity, increased number of users and transactions, and steep rise of its value encouraged researchers to investigate cryptocurrencies’ potential to serve as diversification assets, hedges, or safe havens. The Covid-19 pandemic provided a unique opportunity to examine cryptocurrencies’ behavior during market turbulences, as they have never experienced such shocks before. This thesis aims to investigate the resilience of these alternative assets to market shocks and analyze their possible benefits for investors during financial distress. The thesis employs three methods for empirical analysis: event study, portfolio analysis, and linear regression. These approaches provide insight into the performance of cryptocurrencies during the pandemic. Specifically, they demonstrate mixed reactions of cryptocurrencies to important milestones related to Covid-19. However, portfolio analysis confirms their diversification or hedging capabilities for investors and the potential to serve as a safe haven for S&P 500, MSCI World ETF, MSCI USA Value Factor ETF, and MSCI Germany ETFs. Notably, all kinds of media coverage affected the market capitalization of cryptocurrencies. However, if included in the portfolio, they could still enhance investors’ wealth during the pandemic.

Keywords

bitcoin, covid-19, diversification, event study, portfolio analysis, cryptocurrencies, safe haven

Keywords

bitcoin, covid-19, event study, portfolio analysis, diversification, safe haven, cryptocurrencies

Language used: English

Date on which the thesis was submitted / produced: 12. 5. 2023

Thesis defence

• Date of defence: 16. 6. 2023
• Supervisor: Viktar Dudzich
• Reader: Ondřej Šíma

Vysoká škola ekonomická v Praze

Master programme:
Finance and Accounting