Memecoins as protection against Bitcoin? a new study says yes


Dogecoin, Shiba Inu, DeFi tokens and even metaverse tokens can be useful, says a new study published in Finance Research Letters.

“Meme coin wallets act as potential hedges for Bitcoin. However, wallets made up of DeFi, memecoins, smart contracts, metaverses, or privacy cryptocurrencies act as safe havens for extreme Bitcoin price movements,” the authors state.

They analyze the price movements of cryptocurrencies with a market capitalization of more than $100 million from their launch until June 8, 2022. Each one is classified as memecoin, DeFi either metaverseaccording to the label on the Coinmarketcap website.

They found that “all altcoin portfolios generate negative ratios, and in most cases very significant negative ratios, indicating their ability to act as a safe haven for Bitcoin in times of market turbulence.

Examining the 5% quantile, the metaverse portfolio appears as the best safe haven for value-weighted portfolios, while the meme coin portfolio is considered the best in the 2.5% quantile.

The most interesting finding is the relationship between bitcoin Y other cryptocurrencies during the “bubble and bubble-free periods”. They say:

“In the bubble period, the coefficient of the five portfolios is positively significant, indicating that they cannot act as a hedge for Bitcoin.

In the non-bubble period, our meme coin portfolio is an important hedge for Bitcoin and all other portfolios have a positive and significant coefficient.

Examining the 1% quantile, we find that all portfolios provide significant safe-haven profits for Bitcoin in the non-bubble period. So the ability of altcoin portfolios to act as hedges and safe havens changes whether we are in bubble periods or not..

These findings are interesting because they are supported by the observation of previous bears who generally had a counter-trending coin or token that rose even as Bitcoin lost value.

In the last Bitcoin bear cycle, the bullish altcoin was chain link. Before that, EOS. More generally, there is altcoin season, particularly during the bull period when other cryptos surge after bitcoin spikes.

For countertrend cryptocurrencies, it is difficult to identify them except after the event.

The categorization of cryptocurrencies, therefore, could potentially pave the way for tokenized or centralized indices that can more easily provide exposure to a broad class of cryptocurrencies.

In this case, you would not need to identify the contrarian cryptocurrency as it would only be reflected in the index.

This allows for broader diversification as coverage is now covered by increasing crypto financial sophistication.

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