Cryptocurrencies as an Investment Vehicle: The Asymmetric Relationships Between Bitcoin and Precious Metals

Abstract

One of the main purposes of the investors is to reduce the total risk of the portfolio. In order to achieve this purpose, investors increase the variety of the assets that they include to the portfolio. In today’s financial world the number of the alternatives for the investors increases day by day. One of these alternatives is cryptocurrencies which start with Bitcoin (BTC) in 2008 and having increasing number of variety and popularity. Cryptocurrencies have become an attractive investment alternative for many investors due to their high returns and low correlations with the other assets. But, since these assets are relatively new, it is necessary to determine the return dynamics and analyze their relations with other financial assets in order to achieve the desired benefit for portfolio or risk management. On the other hand, another alternative for the investors who want to invest in different financial instruments, differently from traditional assets such as stocks and bonds, is precious metals. Besides their usage for industrial purposes, precious metals are considered as financial assets to be included in the portfolio, and they are used for diversification by being invested with different financial assets. In this context, the purpose of this study is to analyze the relationships between cryptocurrencies and precious metals, and to investigate their usability in portfolio and risk management. In line with this purpose, causality relationships between the most popular cryptocurrency Bitcoin and gold, silver, platinum, palladium, ruthenium, rhodium, iridium, osmium, rhenium are analyzed by asymmetric causality in frequency domain approach. © Springer Nature Switzerland AG 2019.