Investing in Bitcoin and Ethereum during stock market turmoil - a Swedish Perspective. : A study on the hedging, safe-haven, and diversification characteristics of Bitcoin, Ethereum and Gold against the OMX30 during the COVID-19 crisis and Russian invasio

Abstract: The world has faced tumultuous times in recent years with the COVID-19 pandemic as well as the Russian invasion of Ukraine causing the stock market to be unusually volatile. During such times investors tend to flee to alternative investment opportunities that are uncorrelated or negatively correlated with the stock market, called safe-haven assets. Traditionally, the most prominent safe-haven asset has been gold but with the rise of cryptocurrencies as a new asset class there has been much speculation if they could act as a safe-haven against the stock market. The leading cryptocurrency Bitcoin is often the main target for such research and has even been called “digital gold”. However, some studies have explored the possibility that the second largest cryptocurrency Ethereum has an even greater potential as a safe-have asset. With the stock market crash in 2020 providing the first “real” test if cryptocurrencies can behave as safe-haven assets a myriad of papers on the topic have been published. However, little research has been done taking on the perspective of a Swedish investor. This thesis aims to fill this research gap by investigating whether the two major cryptocurrencies Bitcoin and Ethereum have acted as safe-havens towards the Swedish stock index OMX30 during the COVID-19 crisis and the Russian invasion of Ukraine. For this purpose, DCC-GARCH analysis was conducted, and the results were compared with gold as benchmark of how a more traditional safe-haven asset has behaved. The findings in this study showed that neither Bitcoin or Ethereum have acted as safe-havens during the COVID-19 crisis or the Russian invasion of Ukraine. The study also finds that gold did not act as a safe-haven for the COVID-19 crisis while it did during the Russian invasion of Ukraine. These findings imply that Bitcoin and Ethereum seem to be unable to act as “digital gold” for Swedish investors in a safe-haven and hedging sense. Instead, these cryptocurrencies have only provided diversification benefits during the recent stock market turmoil.