The impact of COVID-19 first wave on cryptocurrencies and G7 stock markets

Purpose: In recent years, traditional markets have been challenged by the emergence of cryptocurrencies, particularly when there are economic disruptions such as the COVID-19 pandemic. This paper examines the intricacies of financial dynamics during the COVID-19 crisis and explores their impact on traditional and cryptocurrency markets. In particular, we explore whether cryptocurrencies are a better safe haven of value than traditional financial markets during economic disruptions like that resulting from the COVID-19 pandemic. Design/methodology/approach: This study examines the differential impacts of COVID-19 on cryptocurrency and traditional financial markets, utilising a robust difference-in-differences methodology to analyse market behaviours across two critical periods: before and after the pandemic was declared by the World Health Organization (WHO). This approach allows us to capture these markets’ distinct responses to a global economic shock, offering insights into their comparative resilience and volatility. The originality of our research lies in its comparative approach to an unprecedented global crisis, providing valuable insights into the dynamics of digital versus traditional assets under stress. Findings: Our findings contribute to the academic discourse by revealing that, contrary to popular belief and compared to traditional assets, cryptocurrencies may not be a safe haven during crises and may begin to mimic traditional assets more closely during such periods. Originality/value: This study enhances our understanding of asset behaviour during economic shocks and has significant implications for investors, policymakers and regulators as they navigate future financial crises.