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Bitcoin, Gold and Crude Oil versus the US Dollar – A GARCH Volatility Analysis

Author

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  • Darie Flavius Cosmin

    (Bucharest University of Economic Studies, Romania)

  • Miron Alexandra Dorina

    (Bucharest University of Economic Studies, Romania)

Abstract

The aim of this study is to compare and contrast the volatility of different asset classes namely Bitcoin, gold and crude oil against the US dollar, using the symmetric GARCH (1,1) model. Furthermore, this study examines which of the three assets provide the lowest volatility and identifies if the univariate GARCH (1,1) model can suitably forecast the volatility of the foreign exchange market, commodity market and cryptocurrency market. More specifically, this study uses only estimates from a symmetric GARCH model for the XAU/USD, WTI/USD and BTC/USD financial assets. Although the literature on the volatility of different assets is extensive, it neglects to detect the severe economic recession that is approaching. Considering that powerful nations purchased substantial quantities of gold in order to back their national currency, supremacy of the US dollar is under significant attack. Experts in international relations have claimed that it is essential to have a single, extremely influential national economy to exhibit stability and operate smoothly. Specifically, the international monetary system functioned under the theory of hegemonic stability. Given the fact that gold still remains the safe haven asset during periods of financial and economic distress, central banks are purchasing gold at a rapid pace with Russia and China leading the way. Furthermore, the demand for precious metals has also increased while the US dollar is struggling to keep its supremacy as BRICS reserve currency is seeking to replace it in the future. The daily data encompassing the necessary information for February 2012 - February 2020 is acquired from “Investing.com”, reaching 7193 observations. This study will enrich the literature associated with volatility forecasting of different asset classes during financial and economic turmoil while also raising awareness of the economic threats that could follow.

Suggested Citation

  • Darie Flavius Cosmin & Miron Alexandra Dorina, 2023. "Bitcoin, Gold and Crude Oil versus the US Dollar – A GARCH Volatility Analysis," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 17(1), pages 254-265, July.
    • Handle: RePEc:vrs:poicbe:v:17:y:2023:i:1:p:254-265:n:50
    DOI: 10.2478/picbe-2023-0027
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    References listed on IDEAS

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    Keywords

    bitcoin; gold; oil; volatility; GARCH (1; 1);
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