Friday, October 16, 2015

16/10/15: Gold and Bitcoin: Adjacency and Hedging Properties

This week, I spoke at a joint Markets Technicians Association and CAIA seminar hosted by Bloomberg, covering two recent research projects I was involved with on the role of Gold and Bitcoin as safe havens and hedges for other assets.

Here are my slides (omitting section division slides):
The first section was based on the following paper:

A caveat to the above, we are seeing increasing evidence that Gold's hedging properties may be changing over time, especially due to increased financialisation of the asset. In this context, it is worth referencing a recent working paper by Brian M. Lucey et al linked here that I also cited at the seminar.

The Bitcoin section is based on a work-in-progress paper with Cormac Ennis: "Is Bitcoin like Gold? Hedging and Safe Haven Properties of the Virtual Currency". The results of presented below should be treated with serious caution as they are extremely preliminary.

Note: we are extending data set to cover longer period, although even with this extension data coverage for Bitcoin is still suboptimal in both duration and quality. Many thanks to the seminar participant for pointing out two key caveats to the overall data coverage:

  1. The 'lumpy' nature of demand around Cypriot banking crisis; and
  2. Potential effects on data quality reported for Bitcoin from a small number of high profile pricing events, such as technical glitches and supply/demand shifts linked to large exchanges-linked events (e.g. MtGox).

 Summarising the two papers findings:

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