What if Ethereum in its role of investment asset may serve as a hedge, diversifier, or a safe-haven asset for investors?
Ethereum is very often compared to Bitcoin as they are both based on the Blockchain. However, there are a few fundamental differences that set them apart. Bitcoin serves as a medium of exchange, similar to the Dollar. Ethereum platform uses newer and more secure technology and protocols and provides new functionality. In other words, Ethereum provides functionality to develop applications with built-in smart contracts that use Ether as a form of payment. Bitcoin does not offer such functionality.
Ethereum will serve as an intraday hedge against stocks and gold?
According to a study by San Jose State University, from December 2017 to 2018, Ethereum was discovered to be a hedge against stocks and gold. The study noted that with regards to the currency market, Ethereum was found to act as a day-to-day diversification tool for the US Dollar.
The report stated:
“Ethereum can act as a daily hedge against the US stock market and gold. Besides, Ethereum can act as a safe-haven asset for the day against the gold market.”
This table reports summary statistics (number of observations, mean, median, standard deviation, skewness, kurtosis, minimum, and maximum) of assets prices and rates of returns on an intraday basis.
Source: Accessecon
Before we proceed with the hedging potential of Ether, we need to establish whether the clustering of volatility might be an additional factor that needs to be considered in the analysis to follow. As indicated in the summary statistics and graphs, ”’fat-tails”’ are present in the return series for all four assets.
Most prior literature on crypto-currencies focuses on the analysis of Bitcoin and its characteristics. Now, we attempt to fill the gap and analyze Ether, the second-largest cryptocurrency based on the Ethereum platform. In particular, we study on an intraday basis, whether Ether is a hedge, diversifier, or a safe-haven asset. We find that Ethereum can serve as an intraday hedge against the US stock market and the gold. Also, ethereum may serve as an intraday safe-haven asset against gold markets. When currency markets are concerned, we document that Ethereum tends to act as a diversifier on an intraday basis for the US Dollar.
Both Ethereum and Bitcoin have shown strong correlations in the past. At the macro level, the entire cryptocurrency market has moved in tandem with the world’s largest cryptocurrency. In fact, according to the latest Skew market research, the correlation between Bitcoin and Ether has fluctuated around 90% in almost two years.
Correlation between bitcoin & ether has been hovering around 90% for almost two years – not bullish! pic.twitter.com/oRSCVe1tos
— skew (@skewdotcom) November 4, 2019
Besides, Binance Research also noted that ETH was the highest correlated asset and had an average correlation coefficient of 0.69 throughout 2019.
Therefore, it is conceivable that some Bitcoin assets such as a fence and safe-haven assets can be transferred to Ethereum. At press time, the price of Bitcoin is fluctuating around $ 10,286, up slightly by 1% in the past 24 hours. Meanwhile, ETH is still holding an increase of nearly 6% on the day, recording the price of $ 281.
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