Bitcoin as an investment asset: The added value of bitcoin in a global market portfolio
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2017-06-02
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en
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This paper investigates whether bitcoin as an investment asset offers diversification benefits, more specific whether bitcoin has hedge or safe haven properties. Bitcoin is a decentralized digital cryptographic currency which has gone through and still goes through spectacular developments leading to a lot of media but also academic attention. Recent literature shows that bitcoin can be seen more as an investment asset than a currency and that bitcoin is useful both for risk management as portfolio optimization. This paper uses the mean variance framework, which can uniquely incorporate policy constraints, in combination with the Monte Carlo Simulation to address the estimation risk issue which is considers as an important aspect for a very volatile asset such as bitcoin. Approaching the performance of bitcoin from an global investment point of view shows a different perspective on bitcoin. The findings of the paper are consistent and show that bitcoin is an effective diversifier with on average a weight allocation between 0% to 5%. Bitcoin shows no hedge or safe haven properties for a global market portfolio. Even though bitcoin shows very robust results investing in bitcoin comes with certain risk which are inherent to bitcoin characteristics and bitcoin’s usage.
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Faculteit der Managementwetenschappen