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Can Bitcoin Be an Inflation Hedge? Evidence from a Quantile-on-Quantile Model

Author

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  • Roman Matkovskyy
  • Akanksha Jalan

Abstract

In this study we quantify and analyze the dynamic dependence between US, eurozone, UK and Japan Bitcoin market returns and realized and unexpected inflation, conditional on different market states and various nuances of inflation. Using a Quantile-on-Quantile regression, we investigate the hedging properties of Bitcoin against inflation, thereby offering a fresh look at the return-inflation puzzle from the point of view of alternative investments. We find that while bullish UK, Euro and Japanese Bitcoin markets facilitate hedging against inflation by offering higher returns, the USD Bitcoin market performs worse with inflation. In general, our results indicate an asymmetric relationship between inflation, both realized and unexpected, and alternative investments such as the Bitcoin market. JEL Codes: C32, E31, G15.

Suggested Citation

  • Roman Matkovskyy & Akanksha Jalan, 2021. "Can Bitcoin Be an Inflation Hedge? Evidence from a Quantile-on-Quantile Model," Revue économique, Presses de Sciences-Po, vol. 72(5), pages 785-797.
    • Handle: RePEc:cai:recosp:reco_pr2_0173
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    Cited by:

    1. Kolawole Ibrahim Gbolahan, 2023. "An Empirical Investigation of Bitcoin Hedging Capabilities against Inflation using VECM: The Case of United States, Eurozone, Philippines, Ukraine, Canada, India, and Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 91-100, November.
    2. Yarovaya, Larisa & Matkovskyy, Roman & Jalan, Akanksha, 2021. "The effects of a “black swan” event (COVID-19) on herding behavior in cryptocurrency markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    3. Jalan, Akanksha & Matkovskyy, Roman & Urquhart, Andrew & Yarovaya, Larisa, 2023. "The role of interpersonal trust in cryptocurrency adoption," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    4. Dmitry V. Boguslavsky & Natalia P. Sharova & Konstantin S. Sharov, 2021. "Cryptocurrency as Epidemiologically Safe Means of Transactions: Diminishing Risk of SARS-CoV-2 Spread," Mathematics, MDPI, vol. 9(24), pages 1-19, December.

    More about this item

    Keywords

    bitcoin; hedge; inflation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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