Inflation-Hedging Potential Of Cryptocurrency Baskets Using Volatility Modeling
(2025) In Master's Theses in Mathematical Sciences FMSM01 20241Mathematical Statistics
- Abstract
- This thesis investigates the inflation-hedging potential of cryptocurrency baskets relative to traditional hedges like gold and stock indices, using volatility modeling to assess risk-adjusted returns. While cryptocurrencies such as Bitcoin have been speculated as potential inflation hedges, their high volatility and limited historical data pose challenges in accurately evaluating
their effectiveness. This study applies the Exponential Realized GARCH-Ito (ERGI) model to capture the volatility dynamics of cryptocurrencies, estimate Value at Risk (VaR), and evaluate hedging performance under inflationary conditions.
Using data from January 2018 to June 2024, the analysis incorporates daily returns to capture cryptocurrency-specific price... (More) - This thesis investigates the inflation-hedging potential of cryptocurrency baskets relative to traditional hedges like gold and stock indices, using volatility modeling to assess risk-adjusted returns. While cryptocurrencies such as Bitcoin have been speculated as potential inflation hedges, their high volatility and limited historical data pose challenges in accurately evaluating
their effectiveness. This study applies the Exponential Realized GARCH-Ito (ERGI) model to capture the volatility dynamics of cryptocurrencies, estimate Value at Risk (VaR), and evaluate hedging performance under inflationary conditions.
Using data from January 2018 to June 2024, the analysis incorporates daily returns to capture cryptocurrency-specific price behaviour in response to inflationary trends. The results indicate that while cryptocurrency baskets offer substantial return potential, their high volatility limits their reliability as standalone inflation hedges, and they are generally outperformed by traditional assets like gold during high inflation periods. Notably, composite indices that combine cryptocurrencies with traditional assets, such as the Bitcoin-Gold (BOLD1) index, demonstrated improved stability and enhanced risk-adjusted returns. This thesis contributes to the field of inflation risk management by assessing cryptocurrency baskets’ hedging potential and exploring their role in inflation-responsive portfolios. (Less) - Popular Abstract (Swedish)
- I en tid av stigande inflation har kryptovalutor beskrivits som en modern version av guld, en tillgång för investerare som vill bevara sin köpkraft. Men hur väl fungerar kryptovalutor egentligen som skydd mot inflation? Den här studien undersöker detta genom att analysera riskjusterade avkastningar och jämföra kryptovalutor med traditionella tillgångar som guld och aktieindex.
Studien använder en statistisk modell, Exponential Realized GARCH-Ito (ERGI), för att analysera data från 2018 till 2024. Genom att jämföra riskjusterade avkastningar från kryptovalutor, guld och breda aktieindex kan vi få en uppfattning om hur dessa tillgångar presterar under perioder av inflation.
Resultaten visade att även om kryptovalutor som Bitcoin kan ge... (More) - I en tid av stigande inflation har kryptovalutor beskrivits som en modern version av guld, en tillgång för investerare som vill bevara sin köpkraft. Men hur väl fungerar kryptovalutor egentligen som skydd mot inflation? Den här studien undersöker detta genom att analysera riskjusterade avkastningar och jämföra kryptovalutor med traditionella tillgångar som guld och aktieindex.
Studien använder en statistisk modell, Exponential Realized GARCH-Ito (ERGI), för att analysera data från 2018 till 2024. Genom att jämföra riskjusterade avkastningar från kryptovalutor, guld och breda aktieindex kan vi få en uppfattning om hur dessa tillgångar presterar under perioder av inflation.
Resultaten visade att även om kryptovalutor som Bitcoin kan ge hög avkastning, är de också betydligt mer volatila än traditionella tillgångar. Detta gör dem mindre pålitliga som inflationsskydd, särskilt under perioder av hög ekonomisk osäkerhet. Det som var intressant var däremot att kombinationen av Bitcoin och guld, i indexet BOLD1, presterade bättre än samtliga portföljer.
Studien visar att kryptovalutor som enskilda investeringar fortfarande är för riskfyllda för att ersätta traditionella tillgångar. Däremot kan kryptovalutor, när de ingår i en diversifierad portfölj, bidra till att balansera risken och öka avkastningen. Detta innebär att investerare bör betrakta kryptovalutor som en potentiell del av en bredare investeringsstrategi snarare än ett ensamt skydd mot inflation. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9186155
- author
- Holgersson, Linn LU
- supervisor
- organization
- course
- FMSM01 20241
- year
- 2025
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Cryptocurrency, Inflation Hedging, Exponential Realized GARCH Ito Model, Value at Risk, Volatility, Diversified Portfolio
- publication/series
- Master's Theses in Mathematical Sciences
- report number
- LUTFMS-3513-2025
- ISSN
- 1404-6342
- other publication id
- 2025:E11
- language
- English
- id
- 9186155
- date added to LUP
- 2025-03-21 09:42:50
- date last changed
- 2025-04-02 18:15:34
@misc{9186155,
abstract = {{This thesis investigates the inflation-hedging potential of cryptocurrency baskets relative to traditional hedges like gold and stock indices, using volatility modeling to assess risk-adjusted returns. While cryptocurrencies such as Bitcoin have been speculated as potential inflation hedges, their high volatility and limited historical data pose challenges in accurately evaluating
their effectiveness. This study applies the Exponential Realized GARCH-Ito (ERGI) model to capture the volatility dynamics of cryptocurrencies, estimate Value at Risk (VaR), and evaluate hedging performance under inflationary conditions.
Using data from January 2018 to June 2024, the analysis incorporates daily returns to capture cryptocurrency-specific price behaviour in response to inflationary trends. The results indicate that while cryptocurrency baskets offer substantial return potential, their high volatility limits their reliability as standalone inflation hedges, and they are generally outperformed by traditional assets like gold during high inflation periods. Notably, composite indices that combine cryptocurrencies with traditional assets, such as the Bitcoin-Gold (BOLD1) index, demonstrated improved stability and enhanced risk-adjusted returns. This thesis contributes to the field of inflation risk management by assessing cryptocurrency baskets’ hedging potential and exploring their role in inflation-responsive portfolios.}},
author = {{Holgersson, Linn}},
issn = {{1404-6342}},
language = {{eng}},
note = {{Student Paper}},
series = {{Master's Theses in Mathematical Sciences}},
title = {{Inflation-Hedging Potential Of Cryptocurrency Baskets Using Volatility Modeling}},
year = {{2025}},
}