Proof-of-work versus proof-of-stake coins as possible hedges against green and dirty energy

Abstract

This paper examines whether cryptocurrencies are hedging instruments for green and non-green energy instruments. We differantiate between cryptocurrencies with two types of consensus mechanisms, Proof-of-work and Proof-of-stake, which reflect the demand for energy used for the coins' confirmation. We obtained dynamic conditional correlations from SV models and apply them to calculate hedge ratios. Based on the sample from January 2019 till December 2022 we find that clean energy sources are better hedges for oil than clean or dirty cryptocurrencies due to high volatility of the latter instruments. Cryptocurrencies are better hedging instruments for oil than for clean energy assets. We also find evidence that investors in clean crytocurrencies are more environmentally aware than those investing in the dirty one.