Green cryptocurrencies hedging looks limited in turbulent markets, study says
A Pusan National University-led study finds green crypto and green finance assets become more linked in booms and selloffs, weakening diversification.
By Priya Raghavan · Science Reporter
3 min read
Green cryptocurrencies hedging may be weaker than investors expect during turbulent markets, according to a Pusan National University-led study published in Financial Innovation. The finding matters because assets tied to sustainability can move more closely together during crises, reducing the protection investors seek from diversification.
The research team, led by Professor Sang Hoon Kang of Pusan National University, studied links between seven green cryptocurrencies and three major green finance benchmarks. The analysis used daily market data from November 2017 through July 2024, a period that included the COVID-19 pandemic and later geopolitical disruptions, according to Pusan National University.
Kang said the team wanted to test the hedging role of green cryptocurrencies as they become part of sustainable investment portfolios, and to compare that role with more established green finance options.
Do green cryptocurrencies hedge market risk?
The study found that green cryptocurrencies and other green assets offered more diversification during ordinary market conditions than during extremes. In market downturns and strong rallies, the assets became more synchronized, according to the researchers, which weakened diversification and raised the risk that shocks could spread across sustainable finance markets.
The authors reported a U-shaped pattern in market connectedness. Links across the assets were moderate in calmer periods, then rose sharply in both bearish and bullish conditions.
That pattern means green assets may not behave like reliable safe havens when investors most want protection, according to the study. The researchers said green bonds, clean energy indices and ESG investments were exposed to disturbances coming from elsewhere in the system, especially from green cryptocurrency markets.
What are green cryptocurrencies?
Green cryptocurrencies are digital assets designed to use less energy than earlier cryptocurrencies that rely on more power-intensive systems. Pusan National University said the study focused on coins that use energy-efficient consensus mechanisms, including proof-of-stake and related protocols.
Such assets have drawn interest as sustainable finance has grown, alongside green bonds, environmental, social and governance funds, and clean energy investment benchmarks. The study said the way these markets interact under stress had been largely untested.
Which assets transmitted volatility?
Among the cryptocurrencies examined, the researchers identified Cardano and Stellar as the strongest transmitters of volatility across the sustainable finance system. Green bonds, clean energy indices and ESG investments acted as net receivers of volatility, according to the paper.
The study also found that market links strengthened during the COVID-19 pandemic and stayed elevated during later geopolitical disruptions. As stress rose, the researchers said, diversification benefits declined and spillovers became clearer across sustainable asset classes.
The team used a quantile vector autoregression framework, a statistical method that compares relationships across bearish, normal and bullish market conditions rather than relying only on average market behavior. According to the authors, that approach helped show how spillovers changed when markets were under pressure or rising strongly.
Kang said investors may need more flexible portfolio strategies, while regulators should consider ways to monitor and manage systemic risks tied to emerging green digital assets. The study said its findings could support tools such as volatility thresholds, disclosure standards and cross-border regulatory frameworks for green digital assets.
This story draws on original reporting from Phys.org.