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The Bitcoin Halving Cycle Volatility Dynamics and Safe Haven-Hedge Properties: A MSGARCH Approach

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  • Jireh Yi-Le Chan

    (Institute for Advanced Studies, Universiti Malaya, Kuala Lumpur 50603, Malaysia)

  • Seuk Wai Phoong

    (Department of Management, Faculty of Business and Economics, Universiti Malaya, Kuala Lumpur 50603, Malaysia)

  • Seuk Yen Phoong

    (Department of Mathematics, Faculty of Science and Mathematics, Universiti Pendidikan Sultan Idris, Tanjong Malim 35900, Malaysia)

  • Wai Khuen Cheng

    (Faculty of Information and Communication Technology, Universiti Tunku Abdul Rahman, Kampar 31900, Malaysia)

  • Yen-Lin Chen

    (Department of Computer Science and Information Engineering, National Taipei University of Technology, Taipei 106344, Taiwan)

Abstract

This paper introduces a unique perspective towards Bitcoin safe haven and hedge properties through the Bitcoin halving cycle. The Bitcoin halving cycle suggests that Bitcoin price movement follows specific sequences, and Bitcoin price movement is independent of other assets. This has significant implications for Bitcoin properties, encompassing its risk profile, volatility dynamics, safe haven properties, and hedge properties. Bitcoin’s institutional and industrial adoption gained traction in 2021, while recent studies suggest that gold lost its safe haven properties against the S&P500 in 2021 amid signs of funds flowing out of gold into Bitcoin. Amid multiple forces at play (COVID-19, halving cycle, institutional adoption), the potential existence of regime changes should be considered when examining volatility dynamics. Therefore, the objective of this study is twofold. The first objective is to examine gold and Bitcoin safe haven and hedge properties against three US stock indices before and after the stock market selloff in March 2020. The second objective is to examine the potential regime changes and the symmetric properties of the Bitcoin volatility profile during the halving cycle. The Markov Switching GARCH model was used in this study to elucidate regime changes in the GARCH volatility dynamics of Bitcoin and its halving cycle. Results show that gold did not exhibit safe haven and hedge properties against three US stock indices after the COVID-19 outbreak, while Bitcoin did not exhibit safe haven or hedge properties against the US stock market indices before or after the COVID-19 pandemic market crash. Furthermore, this study also found that the regime changes are associated with low and high volatility periods rather than specific stages of a Bitcoin halving cycle and are asymmetric. Bitcoin may yet exhibit safe haven and hedge properties as, at the time of writing, these properties may manifest through sustained adoption growth.

Suggested Citation

  • Jireh Yi-Le Chan & Seuk Wai Phoong & Seuk Yen Phoong & Wai Khuen Cheng & Yen-Lin Chen, 2023. "The Bitcoin Halving Cycle Volatility Dynamics and Safe Haven-Hedge Properties: A MSGARCH Approach," Mathematics, MDPI, vol. 11(3), pages 1-19, January.
    • Handle: RePEc:gam:jmathe:v:11:y:2023:i:3:p:698-:d:1051192
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    References listed on IDEAS

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    1. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
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    Cited by:

    1. Juraj Fabus & Iveta Kremenova & Natalia Stalmasekova & Terezia Kvasnicova-Galovicova, 2024. "An Empirical Examination of Bitcoin’s Halving Effects: Assessing Cryptocurrency Sustainability within the Landscape of Financial Technologies," JRFM, MDPI, vol. 17(6), pages 1-23, May.

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