Risk of Investment in Cryptocurrencies

Abstract

Subject and purpose of work: Cryptocurrencies are a phenomenon that has been strengthening its place in the world of finance for over ten years and which is becoming a frequent investment tool. The aim of this study is to compare the level of risk measures of investments in the cryptocurrency market with investments in global capital markets in 2011-2020. Materials and methods: The study used the quotations of the analysed instruments. The level of risk was estimated using standard deviation and semi-standard deviation of daily logarithmic rates of return. Results: Investment in cryptocurrencies is more risky than in shares of the largest international companies. The level of risk decreases with the duration of the cryptocurrency presence on the market. Conclusions: Achieving extraordinary rates of return generates an increased demand and volatility of cryptocurrencies’ quotations. The level of risk of investing in cryptocurrencies is much higher than in the indexes of global capital exchanges.

Risk Management in the Area of Bitcoin Market Development: Example from the USA

“…There is a strong and inseparable relationship between the rate of return and the risk taken, which novice and inexperienced investors cannot see. This problem is visible in the cryptocurrency market, which tempts people who have not previously had contact with financial markets (Kozak and Gajdek 2021). It allures with a high rate of return and the prospect of both quick and long-term returns, almost certain enrichment.…”