'Shiny' Crypto Assets: A Systemic Look at Gold-Backed Cryptocurrencies during the COVID-19 Pandemic

Abstract

Are gold-backed cryptocurrencies as stable as gold during crises? In this paper, we assess whether gold-backed stablecoins, purported to be safer than other cryptocurrencies indeed demonstrate safe haven characteristics during the COVID-19 pandemic. In the digital assets’ ecosystem, gold-backed cryptocurrencies have potential to address the regulatory and policy concerns by decreasing volatility of cryptocurrency prices and facilitating a broader cryptocurrency adoption. We find that during the COVID-19 pandemic, gold-backed cryptocurrencies were susceptible to volatility transmitted from gold markets. However, unlike gold, they were unable to quickly recover from the COVID-19 shock. Gold-backed stablecoins were less volatile in comparison to Bitcoin but did not show the same persistence to the COVID-19 shock as gold, their underlying asset.

Keywords: stablecoins, cryptocurrencies, gold-backed cryptocurrencies, COVID-19; gold

JEL Classification: G01, G15, G23