Are Stablecoins Safe Havens for Traditional Cryptocurrencies? An Empirical Study during the COVID-19 Pandemic

  • Yao Xie Illinois Institute of Technology Stuart School of Business
  • Sang Baum Kang Illinois Institute of Technology Stuart School of Business
  • Jialin Zhao St. Mary's University


We investigate whether stablecoins are safe havens for traditional cryptocurrencies with fresh evidence from the recent crisis period of the COVID-19 pandemic. Our results support the safe-haven properties of Tether for both before and during the pandemic. For Digix, a gold-backed stablecoin with relatively small market capitalization, we find a change in characteristics before and during the pandemic, but do not find statistically significant evidence for its safe-haven properties. Furthermore, we document that, when considering the economic benefits and costs of adding safe-haven assets into cryptocurrency portfolios, the one with Tether outperforms both a naked portfolio and the portfolio with a traditional safe-haven asset such as gold.


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Author Biographies

Sang Baum Kang, Illinois Institute of Technology Stuart School of Business

Sang Baum “Solomon” Kang is an associate professor of finance at Stuart School of Business, Illinois Institute of Technology. He holds a B.S. in Applied Statistics from Yonsei University in Korea, an M.S. in Actuarial Science from the University of Wisconsin at Madison, an M.S. in Computational Finance from Carnegie Mellon University, and a Ph.D. in Finance from McGill University in Canada. Dr. Kang's research focuses on energy finance, real options, commodities, and financial derivatives. He is an author of more than ten refereed scientific publications in various outlets including Energy Economics, the Journal of Energy Markets, Economics Letters, Energy Risk, and Applied Economics Letters. His papers were presented at many conferences including the American Economic Association, the Society of Financial Econometrics, and Federal Deposit Insurance Corporation’s Derivatives and Risk Management Conference. His research in real options and the future of coal-fired electricity plants received media coverage from Risk.Net. His papers received the 2012 FMA Asian Conference Best Paper Award and the 2010 NFA Best PhD Student Paper Award. He taught at McGill University, Korea Advanced Institute of Science and Technology, and Illinois Institute of Technology. He is a Financial Risk Manager certified by Global Association of Risk Professionals. Prior to starting his PhD, Professor Kang worked for nine years in the energy sector doing financial modeling and analysis for commodity traders and risk managers; he assumed managerial positions including Director of Structuring and Pricing at PacifiCorp Energy, a subsidiary of Berkshire Hathaway Energy.

Jialin Zhao, St. Mary's University

Jialin (Jolene) Zhao is an assistant professor of quantitative management with Greehey School of Business at St. Mary's University. She graduated with a B.Eng. in Construction Management from North China Electric Power University, an M.S. in Financial Mathematics from University of Dayton, and a Ph.D. in Management Science from Illinois Institute of Technology. Dr. Zhao has taught quantitative analytics, investment, risk management, and financial programming at Illinois Institute of Technology and St. Mary’s University. Her research interest lies in the field of financial derivatives and risk management, especially in the context of energy markets. Dr. Zhao has presented her studies at the Financial Management Association (FMA) Annual Meeting, the International Association for Energy Economics (IAEE) Asian Conference, and the International Conference on Energy Finance (ICEF) Annual Meeting, and she has published in Journal of Computational and Applied Mathematics, Journal of Energy Markets, Theoretical Economic Letters, and Energy Risk. During her Ph.D. study, she received PRMIA Higher Standard Risk Management Scholarship from the Bank of England.

How to Cite
Xie, Y., Kang, S. B., & Zhao, J. (2021). Are Stablecoins Safe Havens for Traditional Cryptocurrencies? An Empirical Study during the COVID-19 Pandemic. Applied Finance Letters, 10, 2-9.
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