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Stablecoins as the cornerstone in the linkage between the digital and conventional financial markets

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  • Gubareva, Mariya
  • Bossman, Ahmed
  • Teplova, Tamara

Abstract

Do stablecoins mean anything to risk management across financial markets? We answer this question by examining the interrelationships between stocks, treasuries, stablecoins, and cryptocurrencies in nonparametric quantile-causality-in-means and quantile-on-quantile regression models. Differently from previous studies of stablecoins’ price volatility, we focus on stablecoins’ trade volumes. The results extend the evidence on stablecoins’ responses to other crypto assets, whose declining returns, through the phenomena designated by us as “flight-to-cryptosafety”, fuel the stablecoins’ market capitalization. Issuance of new stablecoins, because of their backing by conventional safe assets, raises US Treasuries’ demand. And then, decaying Treasury yields cause “flight-to-safety” from stocks to Treasuries. Results from the quantile-based fixed-parameter models are robust to the dynamic connectedness metric based on the time-varying parameter vector auto-regression (TVP-VAR) framework.

Suggested Citation

  • Gubareva, Mariya & Bossman, Ahmed & Teplova, Tamara, 2023. "Stablecoins as the cornerstone in the linkage between the digital and conventional financial markets," The North American Journal of Economics and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s106294082300102x
    DOI: 10.1016/j.najef.2023.101979
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    References listed on IDEAS

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    1. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    2. Aharon, David Y. & Umar, Zaghum & Aziz, Mukhriz Izraf Azman & Vo, Xuan vinh, 2022. "COVID-19 related media sentiment and the yield curve of G-7 economies," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    3. Maitra, Debasish & Ur Rehman, Mobeen & Ranjan Dash, Saumya & Hoon Kang, Sang, 2022. "Do cryptocurrencies provide better hedging? Evidence from major equity markets during COVID-19 pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
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    Cited by:

    1. Bossman, Ahmed & Gubareva, Mariya & Agyei, Samuel Kwaku & Vo, Xuan Vinh, 2024. "Time-frequency comovements between environmental cryptocurrency sentiment and faith-based sectoral stocks," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 699-719.
    2. Naveed, Muhammad & Ali, Shoaib & Gubareva, Mariya & Omri, Anis, 2024. "When giants fall: Tracing the ripple effects of Silicon Valley Bank (SVB) collapse on global financial markets," Research in International Business and Finance, Elsevier, vol. 67(PA).
    3. Nagl, Maximilian, 2024. "Intricacy of cryptocurrency returns," Economics Letters, Elsevier, vol. 239(C).
    4. Yang, Junhua & Agyei, Samuel Kwaku & Bossman, Ahmed & Gubareva, Mariya & Marfo-Yiadom, Edward, 2024. "Energy, metals, market uncertainties, and ESG stocks: Analysing predictability and safe havens," The North American Journal of Economics and Finance, Elsevier, vol. 69(PB).
    5. Feng, Jingyu & Yuan, Ying & Jiang, Mingxuan, 2024. "Are stablecoins better safe havens or hedges against global stock markets than other assets? Comparative analysis during the COVID-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 275-301.
    6. Patel, Ritesh & Gubareva, Mariya & Chishti, Muhammad Zubair, 2024. "Assessing the connectedness between cryptocurrency environment attention index and green cryptos, energy cryptos, and green financial assets," Research in International Business and Finance, Elsevier, vol. 70(PA).
    7. Ali, Shoaib & Naveed, Muhammad & Hanif, Hasan & Gubareva, Mariya, 2024. "The resilience of Shariah-compliant investments: Probing the static and dynamic connectedness between gold-backed cryptocurrencies and GCC equity markets," International Review of Financial Analysis, Elsevier, vol. 91(C).
    8. Patel, Ritesh & Gubareva, Mariya & Chishti, Muhammad Zubair & Teplova, Tamara, 2024. "Connectedness between healthcare cryptocurrencies and major asset classes: Implications for hedging and investments strategies," International Review of Financial Analysis, Elsevier, vol. 93(C).
    9. Huang, Shoujun & Gubareva, Mariya & Teplova, Tamara & Bossman, Ahmed, 2024. "African forex markets: Modeling their predictability and the asymmetric effects of oil and geopolitical risk," Energy Economics, Elsevier, vol. 136(C).
    10. Ali, Shoaib & Umar, Muhammad & Gubareva, Mariya & Vo, Xuan Vinh, 2024. "Extreme connectedness between NFTs and US equity market: A sectoral analysis," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 299-315.
    11. Ali, Shoaib & Naveed, Muhammad & Gubareva, Mariya & Vinh Vo, Xuan, 2024. "Reputational contagion from the Silicon Valley Bank debacle," Research in International Business and Finance, Elsevier, vol. 69(C).
    12. Mensi, Walid & Gubareva, Mariya & Kang, Sang Hoon, 2024. "Frequency connectedness between DeFi and cryptocurrency markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 12-27.

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    More about this item

    Keywords

    Stablecoins; Stocks; Cryptocurrencies; Bitcoin; US treasuries; Digital financial market; Conventional financial market; Flight-to-quality; Flight-to-cryptosafety; Flight-to-safety; QQR model;
    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
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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