Graduation Year
2023
Date of Submission
4-2023
Document Type
Open Access Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Ricardo Fernholz
Reader 2
Nishant Dass
Terms of Use & License Information
Abstract
Stable coins are the nonvolatile assets that assist cryptocurrency investors in hedging from the volatility of the market. These coins have market capitalizations worth billions of US dollars and are relied on throughout the world to store funds without risk. However, there have been instances in the past of stable coins failing and wiping out billions from the market. In this analysis, I examine the exposure that the four largest stable coins have to market movements in both cryptocurrency markets and traditional financial markets. I find that one stable coin, DAI is the only coin that has no correlation or granger-causal relationships with either market. Tether is found to have a statistically significant correlation with the S&P 500, and the S&P 500 granger-causes price returns in USDC. Finally, there was a statistically significant correlation between cryptocurrency market price returns and the price returns of BUSD. These results show that DAI is the most trustworthy cryptocurrency in hedging from market risks. The research displays weaknesses that each coin has that investors should take into account when investing.
Recommended Citation
Ganley, Joseph, "Are Stable Coins Stable? Stable Coins' Exposure to Cryptocurrency and Financial Market Volatility" (2023). CMC Senior Theses. 3324.
https://scholarship.claremont.edu/cmc_theses/3324
