The economic value of Bitcoin: A portfolio analysis of currencies, gold, oil and stocks

Abstract

We assess the out-of-sample performance of Bitcoin within portfolios of various asset classes and a well-diversified portfolio under four strategies and estimate the economic gains net of transaction costs. We find statistically significant diversification benefits from the inclusion of Bitcoin which are more pronounced for commodities. Most importantly, the decrease in the overall portfolio risk due to the low correlation of Bitcoin with other assets is not offset by its high volatility. However, the inclusion of Bitcoin pays off little if investors accommodate a battery of economic instruments. Considering non-bubble conditions that are not marked by explosive prices in cryptocurrencies, we document substantially diminished benefits.

Portfolio optimization in the era of digital financialization using cryptocurrencies

“…(2019) and Su et al., 2020a , 2020d , also argued that a short position in the market, hedges the risk in different financial asset investments. The inclusion of Bitcoin, in a well-diversified portfolio which comprises of different asset classes, provides certain significant statistical benefits when it comes to diversification ( Symitsi and Chalvatzis, 2019 ). Symitsi and Chalvatzis provided an extensive analysis of the economic value of Bitcoin and suggested that the decrease in the portfolio risk comes from the low correlations between the assets and Bitcoin.…”

Is the status of gold threatened by Bitcoin?

“…Klein et al (2018) argue that Bitcoin cannot be considered as an asset to hedge risks, while gold plays a significant role in the financial system especially during the periods with market distress. Symitsi and Chalvatzis (2019) believe that if investors employ a battery of economic instruments, the portfolio that includes Bitcoin has little returns.…”

Should All Blockchain-Based Digital Assets be Classified Under the Same Asset Class?

“…The literature is well aware that these blockchain-based digital tokens would constitute a new asset class since they are uncorrelated with other typical asset classes that we currently have. See Baur and Lee (2018); Symitsi and Chalvatzis (2019); Hu, Parlour, and Rajan (2018); Liu and Tsyvinski (2018); Chuen, Guo, and Wang (2017); and Pele et al, (2019).…”