Cryptocurrencies and traditional assets: Decoding the analogy from emerging economies with crypto usage

  • Received August 23, 2022;
    Accepted December 12, 2022;
    Published December 15, 2022
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.20(1).2023.01
  • Article Info
    Volume 20 2023, Issue #1, pp. 1-13
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This work is licensed under a Creative Commons Attribution 4.0 International License

This paper investigates the relationship of cryptocurrencies with four traditional assets: equity, fiat currencies, crude oil, and gold in Nigeria, Vietnam, the Philippines, Turkey, and Peru. According to Statista’s 2020 Cryptocurrency Adoption Survey, these five countries showed high levels of crypto usage and ownership. Emerging economies attract the attention of portfolio managers due to the high returns associated with assets originating from these countries. The paper explores the possibility of creating a multi-asset portfolio, including cryptocurrencies. Vector Autoregression Granger causality and Johansen Cointegration tests are conducted to study the relationship between each traditional asset and cryptocurrencies. The study period is from October 2017 to June 2021. The composite Crypto Index was created using the top seven cryptocurrencies based on market capitalization. The Granger Causality test results reveal no causality between Nigeria’s chosen traditional assets and the cryptocurrency index. In the case of the Philippines, there is a unidirectional causality relationship from crypto returns to currency returns; and gold returns to crypto index returns. In Vietnam, stock index returns cause crypto returns; in Peru, gold returns cause crypto returns; and in Turkey, crypto returns cause currency returns. None of the countries has exhibited a bidirectional relationship between traditional assets and the crypto index. The robustness of the causality relations is checked using the Johansen Cointegration test. All the assets taken under study, country-wise, are cointegrated with one another. Hence, when building a multi-asset portfolio covering these five emerging nations, cryptocurrencies do not offer investors diversification, hedging, or haven benefits.

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    • Table 1. Top traded cryptocurrencies
    • Table 2. Summary of significant causality relationships
    • Table 3. Johansen co-integration test results country-wise: maximum eigen value statistics, without linear trend and constant in cointegration
    • Table 4. Johansen co-integration test results country-wise: trace statistics without linear trend and constant in cointegration
    • Conceptualization
      Nupur Gupta, Pradip Mitra, Debjani Banerjee
    • Data curation
      Nupur Gupta
    • Formal Analysis
      Nupur Gupta, Pradip Mitra, Debjani Banerjee
    • Investigation
      Nupur Gupta, Pradip Mitra
    • Methodology
      Nupur Gupta, Pradip Mitra
    • Project administration
      Nupur Gupta, Pradip Mitra
    • Resources
      Nupur Gupta, Pradip Mitra, Debjani Banerjee
    • Supervision
      Nupur Gupta
    • Validation
      Nupur Gupta
    • Writing – original draft
      Nupur Gupta, Pradip Mitra, Debjani Banerjee
    • Writing – review & editing
      Nupur Gupta
    • Software
      Pradip Mitra
    • Visualization
      Pradip Mitra