Blockchain ETFs : dynamic correlations and hedging capabilities

Purpose: In this paper, the authors examine the interconnectedness of four blockchain exchange-traded funds (ETFs) with other financial markets, such as stocks and cryptocurrencies. Design/methodology/approach: A multivariate dynamic conditional correlation model is used to model the relationship of blockchain ETFs with equity and cryptocurrency markets. Risk-minimizing hedge ratios are calculated following the methods used in studies by Kroner and Sultan (1993) and Sadorsky (2012). Findings: The empirical results show a high degree of correlation of blockchain ETF returns with returns of the NASDAQ Composite Index, while the level of comovement with Bitcoin is relatively low. Research limitations/implications: The results imply that blockchain ETFs may be suitable for hedging purposes in a portfolio holding Bitcoin. Furthermore, investing in blockchain ETFs appears similar to investing in NASDAQ. Originality/value: To the best of the authors’ knowledge, no studies have investigated the dynamic relationship of blockchain ETFs and other financial assets.