Analyzing the Empirical Relationship Between Green Bonds and Proof-of-stake Cryptocurrencies: a VECM Approach

Abstract

This paper examines the relationship between green bonds and cryptocurrencies that specifically follow the Proof-of-Stake consensus mechanism. A lot has been discussed about the positive bi-directional and asymmetric relationship between green bonds and bitcoins, the most widely known proof-of-work cryptocurrency and the ineffectiveness of green bonds as hedging instrument for bitcoins. In this study, the author has tried to check whether there is a relationship between green bonds and Proof-of-stake cryptocurrencies using the Vector Error Correction Model (VECM). The secondary data under consideration is the daily data of the S&P Green Bond Index (SPGB) to track the performance of relevant green bonds and the daily data of Solana and Cardano to track the performance of Proof-of-stake cryptocurrencies. It is found that there exists a negative long-term relationship between green bonds and the selected cryptocurrencies. The author also conducts a portfolio analysis to demonstrate how green bonds function as a useful risk-diversification tool in conjunction with cryptocurrencies that follow the proof-of-stake consensus mechanism.