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Are Cryptocurrencies Safe Heaven for Investors?
QUESTION
- Why is this topic relevant, important or interesting?
| Subject | Business | Pages | 4 | Style | APA |
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Answer
Technology, according to Będowska-Sójka and Kliber (2021), has significantly transformed the manner in which people communicate, work, shop, or pay for services and goods. Consumers and companies no longer prefer cash dur to the security risks associated with holding cash money, a behaviour that that is giving space to contactless ways of payments, such as Apple Pay (Bouri et al. 2020). Conlon and McGee (2020) reason that with the fast wave of smartphone, consumers are able to pay for goods and services at digital registers. Consequently, new payment systems, among which is cryptocurrency, are emerging.
The topic is as well interesting since even before the onset of the present worldwide health pandemic, the COVID-19, many crypto enthusiasts have confidence in cryptocurrency’s ability to safely function as a safe haven, a reliable defense against unpredictable and random chaos. Currently, a number of large financial institutions are expending money either in developing their individual crypto (like Bank of America) and collaborating with present cryptocurrency customers (like Zcash with JPMorgan) (Conlon et al. 2020). Similarly, cryptocurrency marketplaces are presently all over. with cryptocurrencies becoming extra widespread across the world, the decentralized ledger knowhow, blockchain, forms the basis for the crypto business (Corbet et al. 2020). Transactions that should be recorded can employ the cryptocurrency technology since such data can be stored and warranted over the blockchain knowhow. The world is also switching to smart contracts, creating opportunities for cryptocurrency. As such, cryptocurrency role playing as a safe haven for investors is worth exploring.
2. How your topic relates to past research in this field?
Various studies have mixed findings on whether cryptocurrencies can role play as safe havens or not (Dwita et al. 2021; Feng et al. 2018; Jeribi & Manzli 2020). However, with the ongoing COVID-19 pandemic, which has shaken the worldwide monetary system and caused immense turmoil, and the unpredictable market conditions, the studies agree that there is a need for a safe haven for investors (Pengfei et al. 2019). According to Ji, Zhang and Zhao (2020), soybean and gold commodity features remained strong safe haven assets during the COVID-19 pandemic. However, variations were noted with cryptocurrencies. This study will join the list of extant literature for it will aim at establishing the veracity of cryptocurrency functioning as safe haven. The link to the main document is https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7244450/.
3. What are the main concepts and theories that could be relevant to your topic?
There are various theories and concepts that will be employed in this research. First is the economic theory, which suggests that cryptocurrencies’ price volatility will fall when consumer usage and business of cryptocurrencies increases (Smales 2019). This reason is supported by the fact that the usage of cryptocurrencies for payments minimizes the sensitivity of cryptos exchange rates to beliefs and attitudes about the future worth of virtual currencies (Umar et al. 2021; Urquhart & Zhang 2019). The second concept is the decentralization of the cryptocurrency markets, implying that they are not backed up or issued by some central authorities, like governments. The decentralization of the markets will significantly inform why cryptocurrencies are more secure relative to other commodities. The concept of blockchain will also be alluded to in this research owing to its relation to the security level of cryptocurrency. Last among other concepts that will be considered in this study is the fact that there are no intermediaries involved in cryptocurrency trading (Bouri et al. 2020). The nonexistence of middlemen implies lower costs of transaction to investors (Będowska-Sójka & Kliber 2021). Subsequently, consumers will directly be dealing with companies and this will also minimize costs and also allow quick responses to clients.
4. What could be the appropriate methodology for your topic?
The qualitative research methodology will be used for this study. Secondary data will be gathered from websites and databases, like coindesk.com and DataStream. This current study will use DCC-GARCH methodology with the goal of examining the dynamic relationship of S&P500, gold, and cryptocurrency. Statistics models, like BDS test and MRSM models will be employed to assess the asymmetric association between the regimes reliant on variables. The data collection method was chosen since I am well conversant with the same. The challenge of time constraints and lockdown and restricted movements due to the current COVID-19 pandemic that is making it hard to go to physical libraries for more research work. To overcome these, online sources of data and information will be sought.
- Will your topic require ethical approval?
No. There will be no need for an ethical approval since the study will not involve the direct involvement of participants during data collection. Largely, data will be obtained from coindesk.com and DataStream, which will not require ethical approval before necessary data is gathered.
This question has been answered
References
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Będowska-Sójka, B, & Kliber, A 2021, ‘Is there one safe-haven for various turbulences? The evidence from gold, Bitcoin and Ether’, The North American Journal of Economics and Finance, vol. 56, pp. 101390. https://doi.org/10.1016/j.najef.2021.101390 Bouri, E, Hussain, SJ, & Roubaud, D 2020, ‘Cryptocurrencies as hedges and safe-havens for US equity sectors’, The Quarterly Review of Economics and Finance, vol. 75, pp. 294-307. https://doi.org/10.1016/j.qref.2019.05.001 Conlon, T, & McGee, R 2020, ‘Safe haven or risky hazard? Bitcoin during the Covid-19 bear market. Finance research letters, vol. 35, pp. 101607. https://doi.org/10.1016/j.frl.2020.101607 Conlon, T, Corbet, S, & McGee, RJ 2020, ‘Are cryptocurrencies a safe haven for equity markets? An international perspective from the COVID-19 pandemic’, Research in International Business and Finance, vol. 54, pp. 101248. https://doi.org/10.1016/j.ribaf.2020.101248 Corbet, S, Hou, YG, Hu, Y, Larkin, C, & Oxley, L 2020, ‘Any port in a storm: Cryptocurrency safe-havens during the COVID-19 pandemic’, Economics letters, vol. 194, pp. 109377. https://doi.org/10.1016/j.econlet.2020.109377 Dwita, MC, Ekaputra, IA, & Husodo, ZA 2021, ‘Are Bitcoin and Ethereum safe-havens for stocks during the COVID-19 pandemic?’ Finance research letters, vol. 38, pp. 101798. https://doi.org/10.1016/j.frl.2020.101798 Feng, W, Wang, Y, & Zhang, Z 2018, ‘Can cryptocurrencies be a safe haven: a tail risk perspective analysis’, Applied Economics, vol. 50, no. 44, pp. 4745-4762. https://doi.org/10.1080/00036846.2018.1466993 Jeribi, A, & Manzli, SY 2020, ‘Can cryptocurrencies be a safe haven during the novel COVID-19 pandemic? Evidence from the Tunisian Stock Market’, Journal of Research in Emerging Markets, vol. 3, no. 1, pp. 14–31. https://doi.org/10.30585/jrems.v3i1.555 Ji, Q, Zhang, D, & Zhao, Y 2020, ‘Searching for safe-haven assets during the COVID-19 pandemic’, International Review of Financial Analysis, vol. 71, pp. 101526. https://doi.org/10.1016/j.irfa.2020.101526 Pengfei, W, Wei, Z, Xiao, L, & Dehua, S 2019, ‘Is cryptocurrency a hedge or a safe haven for international indices? A comprehensive and dynamic perspective’, Finance Research Letters, vol. 31, pp. 1-18. Smales, LA 2019, ‘Bitcoin as a safe haven: Is it even worth considering?’ Finance Research Letters, vol. 30, pp. 385-393. https://doi.org/10.1016/j.frl.2018.11.002 Umar, M, S, C-W, Rizvi, SKA, & Shao, X-F 2021, ‘Bitcoin: A safe haven asset and a winner amid political and economic uncertainties in the US?’ Technological Forecasting and Social Change, vol. 167, pp. 120680. https://doi.org/10.1016/j.techfore.2021.120680 Urquhart, A, & Zhang, H 2019, ‘Is Bitcoin a hedge or safe haven for currencies? An intraday analysis’, International Review of Financial Analysis, vol. 63, pp. 49-57. https://doi.org/10.1016/j.irfa.2019.02.009
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