The co‐movements of faith‐based cryptocurrencies in periods of pandemics

Abstract

In the recent coronavirus pandemic, several researchers have focused on the drivers of cryptocurrency behavior. In particular, this study provides insights into what can drive Islamic cryptocurrency markets and how do they react during the COVID‐19 pandemic. We explore the cryptocurrency volatility and the connectedness between the Islamic, conventional, and COVID‐19 confirmed cases and deaths using the wavelet approaches. The preliminary results show that faith‐based cryptocurrencies have reduced risk exposure than their conventional counterparts, in the long run, making them more appealing for investment, particularly for investors seeking low‐risk and Shariah‐compliant assets. Furthermore, the empirical results indicate that both Islamic and conventional cryptocurrencies are more sensitive to the death toll than the newly confirmed cases. We also observe significant positive co‐movements between Bitcoin and Islamic cryptocurrencies. Besides, Bitcoin exhibits a substantial response during various time scales while compared with Islamic cryptocurrencies. This study contributes to the literature by investigating the sensitivity and the vulnerability of a new category of cryptocurrencies backed by tangible assets to pandemic shocks. To the extent of the author's knowledge, this study is the first attempt that examines the co‐movement between Islamic and conventional cryptocurrencies using the wavelet approach. A viable, ethical, and alternative investment route for faith‐based investors can be provided by the Shariah‐Compliant cryptocurrencies as they are risk‐reduced and less sensitive to the pandemic than conventional benchmarks. Besides, this study creates opportunities in portfolio diversification for investors.

Is Bitcoin an emerging market? A market efficiency perspective

“…Recently, Rufino (2023) confirmed that Bitcoin market efficiency deteriorated during the pandemic period. This is supported by Mnif et al (2023), who also reported that during unexpected events such as the Russia-Ukraine war, the Bitcoin market inefficiency increases. However, Chowdhury et al (2023) noticed that during the Covid-19 period, the market efficiency of the S&P 500 changed more than did that of Bitcoin.…”

“…Thirdly, this paper contributes to the literature on the dynamics of Bitcoin market efficiency and its potential factors. Despite many recent studies on the dynamics of Bitcoin market efficiency, there is no comprehensive evidence on whether the dynamics of Bitcoin market efficiency are related to uncertainty (Wang et al, 2021;Diniz-Maganini et al, 2021;Mensi et al 2022;Phiri, 2022;Fernandes et al, 2022;Mnif, Mouakhar & Jarboui, 2023). In addition, so far it has not been verified in the context of emerging stock markets.…”

Asymmetric connectedness between conventional and Islamic cryptocurrencies: Evidence from good and bad volatility spillovers

“…In other words, these Islamic inventions, unlike conventional cryptocurrencies, contain tangible financial factors that underpin their pricing. As a result, their volatility and speculation are limited by these qualities (Berentsen and Schär 2018;Mnif et al 2022). Stellar is the first distributed ledger protocol to achieve Sharia compliance from the Shariah Review Board licensed by the Central Bank of Bahrain in the money transfer and asset tokenization space.…”

“…In spite of the fact that some studies discuss the interaction between Islamic metalbacked cryptocurrencies and conventional cryptocurrencies, and the potential for cryptocurrencies to become more suitable for Islamic finance (Abubakar et al 2019;Alam et al 2019;Ayedh et al 2020;Houssem and Robbana 2019;Kakkattil 2019;Yousaf and Yarovaya 2022), this paper is motivated by some gaps in the literature. Firstly, as a purely cryptographic asset, Bitcoin can be transacted and used effectively as a method of payment, however, it does not seem to be universally accepted by Islamic (faith-based) retailers or investors looking for opportunities and businesses that adhere to Shariah (Mnif et al 2022). It is pertinent to consider using a powerful tool based on modern financial technology to satisfy the demand for Islamic financial instruments and contracts, which would not only be compatible with Islamic Shariah laws but also be accepted in global financial transactions.…”

“…As a third point, there are a few studies on the interaction of Islamic and conventional cryptocurrencies, but all of them are designed based on three gold-backed Shariah-compliant cryptocurrencies, OneGram Coin, X8X Token, and HelloGold (see, Wasiuzzaman et al 2022;Yousaf and Yarovaya 2022;Mnif et al 2022;Aloui et al 2021;Mnif and Jarboui 2021;Ali et al 2022). As the market capitalization data compiled by coinranking.…”