JRFM, Vol. 19, Pages 81: Is It a Case of Safe Haven? Analyzing Stablecoin Returns Considering Cryptocurrency Dynamics

Journal of Risk and Financial Management doi: 10.3390/jrfm19010081

Authors:
Vitor Fonseca Machado Beling Dias
Rodrigo Fernandes Malaquias

In this study, we evaluated the returns and return volatility of a Brazilian stablecoin linked to fertilizers during periods preceding its discontinuation. In light of the safe haven literature, we also tested the correlation between this stablecoin and a traditional cryptocurrency, Bitcoin, and modeled its behavior during periods of Bitcoin’s extreme returns. In terms of methodology, we employ GARCH-family models (including DCC-GARCH) to analyze daily data from 1 December 2022 to 16 January 2025. We also employ an analysis using Large Language Models (LLMs), evaluating the stablecoin time series considering the period of its discontinuation. The results indicated that as the discontinuation date approached, the stablecoin exhibited statistically significant lower returns and higher volatility. While the DCC-GARCH indicated no correlation between the assets, we found that the stablecoin’s returns exhibited a negative relationship with Bitcoin’s extreme returns, challenging its potential efficacy as a safe haven. This article offers practical contributions for digital asset investors, indicating that even physically backed stablecoins, designed for stability, are subject to significant volatility, idiosyncratic risks, and potential discontinuation.

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Vitor Fonseca Machado Beling Dias www.mdpi.com