From digital gold to digital mirage? Hedge and safe haven: Evidence from ASEAN+2 and G5 countries

Abstract

Volatility, economic shocks, geopolitical tensions, and financial crises can cause major investment losses in financial markets and thus emphasize the need for risk-mitigation assets. The growing popularity of cryptocurrencies as risk mitigation assets has attracted increasing scholarly and investor attention. If cryptocurrencies are potential digital gold, do they really offer the same hedging abilities as the universal hedge, gold, or are they merely just a digital mirage? Thus, this study aims to examine the hedge properties of gold and cryptocurrencies against stock markets in ASEAN+2 and G5 countries to uncover evidence in both emerging and developed financial markets. By using daily data spanning from 10 November 2017 to 31 December 2024, the DCC-GJR-GARCH model is employed to estimate optimal portfolio weights, hedge ratios, and hedge effectiveness, while Modified Value at Risk (MVaR) and Modified Conditional Value at Risk (MCVaR) are applied to assess downside risk under varying asset allocations. Results demonstrate that gold remains the most reliable hedging instrument, consistently exhibiting superior hedge effectiveness and significantly reducing tail risks. In contrast, cryptocurrencies provide limited hedging benefits and cannot yet substitute for gold as a universal hedging instrument in both emerging and developed financial markets. Thus, the idea of cryptocurrencies being digital gold is a digital mirage. The findings therefore recommend that national central banks of both emerging and developed countries maintain gold within their reserves to enhance financial resilience against market disruptions. The findings suggest investors should view cryptocurrencies with caution, as they do not function as dependable digital gold.