A recent study by Dominique Guegan, affiliated with Université Paris, Panthéon-Sorbonne, and two other scholars tackles this question. The study reaches no definitive conclusion, except the negative one that there is no way Bitcoin can be “fully hedged because the density forecasting capabilities of Altcoins are inadequate.” It also seems to favor Ethereum as the best of the available options, though the authors do not quite want to say so.

Bitcoin is the matriarch of the altcoins family, and all the family members share some common features, so one might expect that the other coins could be used to hedge positions taken in the mother of them All vis-a-vis the dollar or another of the sovereignty-backed currencies. The problem, though, is that Bitcoin’s history shows “unusual volatility clustering effects” that are not among the econometric features of the other coins.

The Altcoins most often used by market participants as hedging tools are: Ethereum, Bitcoin Cash, and Bitcoin Satoshi Vision. The authors ultimately agree with the market’s estimation that these are the best proxies available. They also concur that relationships change over time. Ethereum was “a poor proxy-hedging candidate before 2017, but the differences between Ethereum and Bitcoin’s distributions [attenuated] during 2018.”

Ethereum is probably the best hedging tool available, when one considers the degree to which Bitcoin Cash and Bitcoin SV are subject to, and have been used for, market manipulation.