Intl Conference on Economics, Finance & Business, Rome

ASSESSING THE POTENTIAL ROLES OF DIFFERENT CRYPTOCURRENCIES AND GOLD THROUGHOUT INFLATIONARY PERIODS

MARIA DE LA O GONZALEZ PEREZ

Abstract:

This study investigates the responsiveness of cryptocurrency returns -specifically Bitcoin, Cardano, and Tether- to unanticipated fluctuations in inflation and interest rates. It further evaluates their suitability as hedge, safe-haven, or diversifier assets in mitigating these macroeconomic risks. For comparative purposes, gold is included as a benchmark safe-haven asset. The analysis is conducted across two distinct sub-periods: 2019-2021, characterized by stable interest rates, and 2022-2024, marked by a rising interest rate environment. Employing quantile regression (QR), this research captures the distributional effects of returns under varying market conditions. The key findings of this study reveal several important insights. To begin with, Tether exhibits a consistently negative and statistically significant association with both nominal and real interest rates during bullish market phases, reinforcing its role as a hedge against interest rate fluctuations. Additionally, Tether, along with Cardano over the full sample period and during the second sub-period of rising rates, as well as Bitcoin in the first sub-period, emerges as a viable instrument for investors seeking to diversify nominal interest rate risk. Moreover, gold demonstrates a persistent positive and statistically significant relationship with inflation expectation shocks during economic downturns, reaffirming its status as both a hedge and a potential safe-haven asset against inflation. Lastly, Bitcoin appears to function as a safe-haven asset against inflation in the second sub-period, a phase characterized by increasing interest rates, partially driven by inflationary pressures linked to the Russia-Ukraine conflict. These findings underscore the heterogeneous responses of cryptocurrencies to macroeconomic variables, illustrating their potential roles as portfolio diversifiers, hedging instruments, or safe-haven assets. Furthermore, the results suggest the necessity for continued research into the regulatory implications of cryptocurrency integration within financial markets.

Keywords: Hedge; Safe-haven; Diversification; Cryptocurrencies; Interest rates; Inflation expectations; Quantile regression.