Proof-of-work versus proof-of-stake coins as possible hedges against green and dirty energy

This article examines whether high- and low-environmental impact cryptocurrencies
play a role as hedging instruments for green and non-green energy instruments. We differentiate
between cryptocurrencies with two types of consensus mechanisms, proof-of-work
and proof-of-stake, which reflect the energy demand used for the coins’ confirmation. We
obtain volatilities and dynamic conditional correlations from stochastic volatility models
and apply them to calculate hedge ratios. Based on the sample from 15 January 2019 to
15 September 2022, we find that clean coins provide equally good protection, measured by
the hedge effectiveness, as compared to dirty coins. Yet, in each case, such effectiveness
was time-varying and insignificant in some periods. Overall, cryptocurrencies are more
effective hedges for oil than for clean energy assets.