Abstract

This study examines the responses of Bitcoin and gold to categorical financial stress and compares the responses before and during the COVID-19 pandemic. The OLS and Quantile regression estimations revealed that gold and Bitcoin exhibit similar reactions in full and pre COVID-19 samples. Gold and Bitcoin respond positively to equity valuation and safe assets categories of financial stress. Gold also reacts positively to the credit category of financial stress suggesting that widening credit spreads are bullish for gold. Bitcoin and gold respond differently in the funding category, and there is no significant reaction to volatility-related financial stress. Overall, the effects of categorical financial stress on gold and Bitcoin are similar in the full sample and sub-sample before COVID-19, but the effects are heterogeneous. Interestingly, during the pandemic, the reactions of gold and Bitcoin to categorical financial stress have changed. Gold only reacts positively to the credit category of financial stress across quantiles. Bitcoin reacts positively to credit and safe asset categories but not across all quantiles. The findings offer insights into the effects of several systemic financial stress on the value of safe haven assets.