CROSS-BORDER CAPITAL FLOWS AND FINANCIAL STABILITY: CRYPTOCURRENCIES AS SAFE HAVENS AND RISK CONTAGION MECHANISMS IN ASIAN MARKETS

Abstract

This study aims to examine the potential of cryptocurrencies as safe-haven assets and their impact on financial stability, focusing on the Shanghai, Shenzhen, and Hong Kong stock exchanges. The research employs cross-sectional expert interviews to analyse attitudes towards cryptocurrencies compared to traditional safe-haven assets, such as gold, and investigates the mechanisms through which cryptocurrency price fluctuations influence regional stock markets. The findings present a nuanced perspective: while cryptocurrencies—particularly Bitcoin—are regarded by some as viable instruments for portfolio diversification, their extreme volatility and regulatory uncertainties render them unsuitable as reliable hedging tools. The study identifies cross-sectional risks, wherein cryptocurrency movements disproportionately affect high-growth sectors in traditional markets, notably technology and finance. The policy implications underscore the necessity for robust reforms to mitigate potential risks and advocate for multilateral cooperation to maintain financial stability. The recommendations also emphasise the importance of diversified investment strategies, increased investor awareness, and the adoption of stable coins or, in the future, central bank digital currencies (CBDCs), as more stable digital investment alternatives. This research contributes to the growing body of literature on cryptocurrencies in financial markets, highlighting the importance of integrating qualitative assessments with quantitative methods to achieve effective risk management.