Abstract
•We unveil that Islamic gold-backed cryptocurrencies behave differently from their conventional counterparts.•Compliance to sharia rules lowering the sensitivity of Islamic digital currencies to global geopolitical risk.•Islamic gold-backed cryptocurrencies are positively correlated to gold, while the conventional ones are weakly and negatively correlated to gold.•The occurrence of extreme geopolitical risk incidents intensifies the volatility of the correlation.
We assess the differential impact of geopolitical risk on Islamic and conventional gold backed cryptocurrencies using a multivariate Generalized Autoregressive Conditional Heteroscedasticity (M-GARCH) modeling. We unveil that Islamic gold-backed cryptocurrencies behave differently from their conventional counterparts. Sharia compliant cryptocurrencies are positively correlated to the yellow metal, while the conventional ones are weakly and negatively associated to gold. We find that the geopolitical risk intensifies the dependency of GBC to gold returns and volatility. Our results are of great interest for policy makers, Islamic portfolio managers and digital currency traders when undertaken their investment and hedging strategies during periods of high uncertainty and worsen geopolitical circumstances.