Managing extreme risks and interdependence between green cryptocurrencies and precious metals

Abstract

This study examines the relationship between green cryptocurrencies and major precious metals using the EVT-based CoVaR copula methodology, along with the estimation of hedging ratios and effectiveness indices. By analyzing risk and return spillovers, the study uncovers significant interdependencies, revealing the complex interactions between these two asset classes. While our findings indicate a substantial linkage, the decoupling hypothesis suggests that green cryptocurrencies operate independently from conventional investment assets. Moreover, the spillover effects between these two asset classes are asymmetric, with precious metals offering diversification benefits for green cryptocurrencies under extreme conditions, while green cryptocurrencies fail to provide similar benefits. The hedging benefits of green digital assets are minimal, in contrast to classical digital assets, highlighting their limited effectiveness when incorporated into investment portfolios. These insights have significant implications for investors, regulators, and risk managers, offering a new perspective on the position of green cryptocurrencies and precious metals in contemporary portfolio strategies and risk management practices.