Cryptocurrencies vs global foreign exchange risk (original) (raw)

The Journal of Risk Finance, 2019

Abstract

Purpose This study aims to examine the properties of four major cryptocurrencies and how they can be used as a simpler alternative mode of hedging foreign exchange (FX) risks as compared to existing mainstream financial risk management techniques. Design/methodology/approach This study uses a combination of visual data representations and the classic Fama and Macbeth (1973) two-pass procedure regressions. Findings The findings show that cryptocurrencies can be a more effective hedge against FX risks as compared to other common hedging instruments and/or techniques such as gold or a diversified currency portfolio. Research limitations/implications The conclusions were arrived at based only on a small group of cryptocurrency, i.e. Bitcoin, Ethereum, Litecoin and Ripple. Other cryptocurrencies such as Dogecoin or ZCash might exhibit different properties. Practical implications Cryptocurrencies can be cost-effective and cost-efficient instruments that provide a solid hedge for investors...

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