Dogecoin, Shiba Inu, defi tokens and even metaverse tokens can be useful, a new study published in the Finance Research Letters says.
“Portfolios of meme coins act as potential hedges for Bitcoin. However portfolios made up of DeFi, meme coins, smart contract, metaverse or privacy cryptocurrencies all act as safe-havens to extreme movements in the price of Bitcoin,” the authors state.
They analyze the price movements of cryptos with a marketcap above $100 million from their launch until June 8th 2022.
Each is categorized into a memecoin, defi, or metaverse depending on the label given on Coinmarketcap.
They find that “all portfolios of altcoins generate negative coefficients and in most cases, highly significant negative coefficients indicating their ability to act as safe-havens for Bitcoin in times of market turmoil.
When examining the 5% quantile, the metaverse portfolio appears the best safe-haven portfolio for value-weighted portfolios while the meme coin portfolio is deemed the best at the 2.5% quantile.”
Their more interesting finding is the relationship between bitcoin and other cryptos during “bubble and non-bubble periods.” They say:
“In the bubble period, the coefficient of the five portfolios are positively significant, indicating that they are not able to act as hedges for Bitcoin.
In the non-bubble period, our meme coin portfolio is a significant hedge for Bitcoin and all other portfolios has positive and significant coefficient.
When examining the quantile 1%, we find all the portfolios provide significant safe-haven benefits for Bitcoin in the non-bubble period. Therefore the portfolios of altcoins ability to act as hedges and safe havens change whether we are in bubble or non-bubble periods.”
These findings are interesting because they’re supported by observation with previous bears usually having a counter-trending coin or token that gained significantly even while bitcoin lost value.
For the latest bear, it was ChainLink. Prior to that, EOS. More generally there’s the altcoin season, mostly during bull, when other cryptos race following a bitcoin spike and then pause.
For the counter-trending crypto or cryptos, it is difficult to identify it/them except for after the event.
The categorization of crypto therefore may potentially pave the way for tokenized or centralized indexes that more easily can provide exposure to a broad class of cryptos.
In which case, you wouldn’t need to identify the counter-trending crypto, as it would just reflect on the index.
That allows for wider diversification as the hedge now itself gets hedged in increasing crypto financial sophistication.