Safe Havens or Sinking Ships? : The Hedging Roles of Traditional Assets Against Cryptocurrencies

What happens to the world’s most trusted financial assets when chaos erupts not from Wall Street, but from the cryptosphere? This thesis explores a pressing question of our digital age: do traditional safe havens like gold, U.S. Treasury bonds, and the S&P 500 still protect investors when financial shocks originate from within the volatile world of cryptocurrencies? Focusing on two of the most dramatic crypto-induced crises the collapse of Terra (LUNA) in May 2022 and the Celsius Network’s liquidity implosion in June 2022 this study investigates whether the old guards of financial safety can withstand the new waves of digital disruption. As cryptocurrencies become increasingly entangled with global markets, understanding whether these established assets still act as effective hedges or safe havens is no longer academic. It’s essential. Grounded in Modern Portfolio Theory, Safe-Haven Theory, and Hedging Theory, the research combines event study methods, rolling correlation analyses, and GARCH-based models across nearly a decade of market data (2015 to 2024). The findings reveal a subtle but significant shift: while gold and Treasuries continue to offer protection during liquidity-driven crypto stress, their reliability wavers during deeper structural crises. Traditional hedges no longer operate in isolation their behavior is shaped by the very systemic risks they were once meant to resist. This thesis uncovers a financial paradox at the heart of the 21st century: the more connected markets become, the less absolute safety appears to be. For investors, policymakers, and scholars alike, it signals a new imperative to rethink risk, redefine resilience, and reimagine what a haven really means in a world where digital tremors can shake even the oldest foundations.