Exploring Safe Hedging Options for Blockchain Assets in the Face of COVID-19-Induced Volatility

Introduction

Money systems have evolved greatly over the centuries. From barter to plastic money, there are a variety of different types of money. Throughout each era, technical developments, financial needs, and the equivalent efficiency of performing a transaction acted as the determinants of one money form's continuing existence over another. Of today's world, there has been an increasing increase in international hostility toward the present monetary system, notably in the aftermath of the financial instability that enveloped financial markets from 2007 to 2009, resulting in catastrophic economic effects throughout the world. Bitcoin (the first cryptocurrency) was launched in 2009. As per its white paper, it sought to alter the world financial system fundamentally. Recently, the concept of bitcoin gained substantial public support as crowds began to use it for a variety of reasons, including the desire for a different monetary system that is less dependent on the present traditional one. Numerous other cryptocurrencies have benefited from this public interest, resulting in a considerable evolution of the cryptocurrency sector. The main point of contention in this issue is that virtual currency markets have no inherent worth and do not pay dividends, yet investors continue to invest and profit (Ozdemer, 2022).

Recent concerns and disagreement that has dogged the cryptocurrency market since creation, has evolved into one of the most important alternative investment venues in the financial market (Huynh et al., 2020). A keen interest in study on these themes has grown as a result of the recent quick rise in the price of cryptocurrencies such as Bitcoin, Ethereum, and Litecoin (Ozdemir, 2022). (Nakamoto, 2008) He first proposed the theories of Bitcoin, since then many investors have become interested in digital money, causing digital currency transactions to become more prominent in the business world and investing scene. Investors typically select hedging assets such as cryptocurrency to mitigate financial risk and lock in profits when financial markets become more volatile and risky.

According to Markarov & Schoar, 2020, the cryptocurrency market, which is regarded as a new class of assets, has attracted significant interest from academics, speculators, lawmakers, and authorities (Nasir et al., 2019; Kou et al., 2014). The intricacy of the cryptocurrency market may be explored from multiple angles, and the goal of our research is to build a network centered on crypto-currency information to track possible linkages, impacts, and hedging choices between different types of crypto-currencies. The World Health Organization reported corona virus, a pandemic in 2020. COVID-19 has a significant impact on practically all areas of the economy. This was the start of our research.

Throughout this COVID-19 problem, it is vital to know the cryptocurrency market dynamics, particularly the links between different cryptocurrencies. Financial advisors must adapt their asset mix to diversify risk if volatility is conveyed from one cryptocurrency to another during a crisis, and financial policymakers must adjust their rules to prevent the risk of contagion. (Caporin & Malik, 2020).

Numerous studies have concentrated on the impact of diversity, and have examined the best asset mix that may maximise returns while minimising volatility (Baur et al., 2018; Kajtazi & Moro, 2019; Urquhart & Zhang, 2019). Nonetheless, this study expands on past research in two areas. To begin, this study began with the top twenty cryptocurrencies, but owing to a lack of data availability and other precondition criteria, it has been condensed to only seven. During COVID 19, it compared the spillover effects of one crypto currency on another. Second, this study focused at the time variability in cryptocurrency diversification evaluations.