Bitcoin—A hype or digital gold? Global evidence

Abstract

This study explores whether Bitcoin constitutes as a hedging instrument whilst seeking portfolio diversification opportunities among sustainable, conventional and Islamic asset classes since Bitcoin emerges as a distinct alternative investment and asset class across the world. We apply multivariate generalised autoregressive conditional heteroscedastic‐dynamic conditional correlation and continuous wavelet transforms based on the recent data set ranging from August 18, 2011, to September 10, 2018. First, our findings show that Bitcoin returns are mean‐reverting which implies that its value tends to come down to mean value in the long run and not completely crushed to zero irrespective of price changes suggesting Bitcoin as a sustainable asset class. Second, the time‐invariant model shows that Bitcoin offers portfolio diversification opportunities with almost all equity indices, in particular, Dow Jones Islamic followed by FTSE 4 Good index. Finally, the time‐variant analysis reconfirms that Bitcoin offers portfolio diversification benefits both in the short and long run. These findings carry meaningful policy considerations for fund managers and cross‐country investors.

Fintech in islamic finance literature: A review

“…Several studies have assessed the empirical nature of cryptocurrencies along with Islamic equity and capital markets to understand the riskreturn tradeoff and whether they provide diversification and hedging opportunities. For example, Uddin et al (2020) consider the role of bitcoins as hedging instruments in portfolio management. Using a comprehensive daily dataset of Islamic, convention, and sustainable assets, they reported that bitcoin values are mean-reverting in the long run, however, bitcoin provides portfolio diversification benefits to all equity markets both in the short and long run.…”

The potential of alternative investments as an asset class: a thematic and bibliometric review

“…Meng et al (2019) explored the impact of hedge fund fee diversification on portfolio returns and documented that such fee structure does not provide superior returns to investors. Ram (2019), 2020) and Uddin et al (2020) documented the evidence of higher risk-adjusted returns from investments in Bitcoin. Boal and Wiederhold (2021) stated that investments in commodities provided opportunities for better risk premia strategies and stated that long-only commodity investments provide diversification benefits and inflation protection.…”

Narrative strategies for emerging disruptive technologies: A case study of Blockchain for Europe

“…Satoshi Nakamoto made it "impossible" for the miners to solve the equation that can create new bitcoins after reaching this ceiling. This has led some to argue that bitcoin is "digital gold" (Uddin et al, 2020).…”