Journal of Energy Markets

Risk.net

Estimating the hedging potentials of Bitcoin and energy returns

Moussa Wajdi, Regaieg Rym and Mgadmi Nidhal

  • Bitcoin acts as a hedge for gold.
  • Bitcoin acts as a diversifier for oil and for coal.
  • Holding an investment portfolio of Bitcoin and coal is more profitable than exclusively holding an investment portfolio of Bitcoin and gold or Bitcoin and oil.

This paper investigates the significance of oil, gold and coal returns on Bitcoin returns for a research duration of January 2011 to September 2018 on a monthly periodic basis. We assess the long-term relationship between oil, gold, coal and Bitcoin within the ESTAR approach. In this study, gold is used as a significant control variable. Our empirical results provide evidence endorsing our hypothesis. Gold and crude, Brent Crude and West Texas Intermediate oil prices have negative and remarkable effects on the natural logarithm of Bitcoin. Coal and natural gas have equally positive effects on Bitcoin, although they do not necessarily share the same significance. Natural gas has an insignificant impact on Bitcoin’s return compared with coal. Our findings show that both Bitcoin and coal would serve as hedges for oil and gold. For Bitcoin investors, the results imply the ability to use data about oil, gold and coal returns to improve predictions of Bitcoin returns. Despite the dissimilarities shown, hedging strategies for gold, oil, coal and Bitcoin all at once are of great importance when considering overall portfolio risk variance.

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