Safe-haven properties of Cryptocurrencies following Shariah Compliance during the COVID-19 pandemic

Abstract

During times of economic uncertainty, investors tend to secure their investments using safe-haven assets. Traditionally, assets such as gold have been viewed as safe-haven; however, the rising popularity of cryptocurrencies has led some researchers to consider their safe haven property effects against uncertainty as well. Though much of the focus in this domain has been on cryptocurrencies such as Bitcoin, shariah-compliant (SC) cryptocurrencies in the Muslim world have not received this attention. Muslim investors have considerable interest in considering cryptocurrencies for investment purposes, and with the rise of SC cryptocurrencies, this is now a possibility.

Identifying and understanding the financial properties of cryptocurrencies are challenging and essential as references for investors, policymakers, researchers, and portfolio managers, as well as can be helpful for socio-economic sustainability. Therefore, studying SC cryptocurrencies and their safe-haven properties present an interesting study. Given the ongoing pandemic and high volatility in the global markets, it is essential to ascertain if SC cryptocurrencies provide an alternate form of a safe investment. Therefore, the aim of this study is to analyse the safe-haven properties of SC cryptocurrencies during the COVID-19 pandemic period.

In studying the safe-haven properties of SC cryptocurrencies, this paper will contribute to the existing literature in a few ways. First, this paper will examine the safe-haven properties of SC cryptocurrencies using the new proxy of the global Covid-19 fear index. This will be the first time this proxy will be used to assess the safe-haven properties of SC cryptocurrencies. Second, the paper will utilise the wavelet coherence approach to study the variations in safe-haven properties across time and frequency during the COVID-19 pandemic. To the best of the author’s knowledge, this will be the first application of the wavelet coherence approach to study the safe-haven properties of SC cryptocurrency.