Investigation of the feasibility of including different cryptocurrencies in the investment portfolio for its diversification
Purpose – the main aim of this article is to identify cryptocurrencies suitable for investment and portfolio diversification.
Research methodology – the methodology of empirical research includes methods of scientific literature analysis, statistical data analysis, multicriteria evaluation, correlation analysis.
Findings – Bitcoin is the leading cryptocurrency, but this result could have been due to an exceptionally high market capitalization. Based on the results of the analysis, the inclusion of Bitcoin, Etherium and Dogecoin in the investment portfolio of S&P500, Euro Stoxx 50, DAX and CAC 40 indexes could be considered. Terra could be an interesting investment when considering the benefits of diversification.
Research limitations – based on the results of the study, the inclusion of all studied cryptocurrencies in the investment portfolio could be considered in order to diversify the portfolio, taking into account their investment attractiveness.
Practical implications – Cryptocurrencies attract investors not only because of the returns they receive, but also because of the absence of intermediaries, which allows them to reduce transaction costs. High returns are associated with high risks, so it is necessary to conduct as much research as possible to identify the benefits of cryptocurrencies and to find risk management strategies. One such benefit of cryptocurrencies highlighted in research is diversification.
Originality/Value – the novelty of the study lies in evaluation of 10 selected cryptocurrencies according to different criteria using a multi-criteria valuation method to identify cryptocurrencies that are non-correlated or weakly correlated with traditional assets and the most suitable for investment and for portfolio diversification.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Ankenbrand, T., & Bieri, D. (2018). Assessment of cryptocurrencies as an asset class by their characteristics. Investment Management and Financial Innovations, 15(3), 169–181. https://doi.org/10.21511/imfi.15(3).2018.14
Berentsen, A., & Schär, F. (2018). A short introduction to the world of cryptocurrencies. Federal Reserve Bank of St. Louis Review, 100(1), 1–16. https://doi.org/10.20955/r.2018.1-16
Bilevičienė, T., & Jonušauskas, S. (2011). Statistinių metodų taikymas rinkos tyrimuose. Mykolo Romerio universitetas.
Binda, J. (2020). Cryptocurrencies – problems of the high-risk instrument definition. Investment Management and Financial Innovations, 17(1), 227–241. https://doi.org/10.21511/imfi.17(1).2020.20
BITA. (n.d.). The Index Technology Company. Retrieved December 5, 2021, from https://www.bitadata.com/
Bondar, M. I., Stovpova, A. S., Ostapiuk, N. A., Biriuk, O. H., & Tsiatkovska, O. V. (2020). Efficiency of using cryptocurrencies as an investment asset. International Journal of Criminology and Sociology, 9, 2944–2954. https://www.lifescienceglobal.com/pms/index.php/ijcs/article/view/8078
Bondarenko, O., Kichuk, O., & Antonov, A. (2019). The possibilities of using investment tools based on cryptocurrency in the development of the national economy. Baltic Journal of Economic Studies, 5(2), 10. https://doi.org/10.30525/2256-0742/2019-5-2-10-17
Bonneau, J., Miller, A., Clark, J., Narayanan, A., Kroll, J. A., & Felten, E. W. (2015). SoK: Research perspectives and challenges for bitcoin and cryptocurrencies. In Proceedings – IEEE Symposium on Security and Privacy (pp. 104–121). IEEE. https://doi.org/10.1109/SP.2015.14
Brauneis, A., & Mestel, R. (2019). Cryptocurrency-portfolios in a mean-variance framework. Finance Research Letters, 28, 259–264. https://doi.org/10.1016/j.frl.2018.05.008
Brauneis, A., Mestel, R., & Theissen, E. (2021). What drives the liquidity of cryptocurrencies? A long-term analysis. Finance Research Letters, 39. https://doi.org/10.1016/j.frl.2020.101537
Čekanavičius, V., & Murauskas, G. (2001). Statistika ir jos taikymai, I. TEV.
Čekanavičius, V., & Murauskas, G. (2004). Statistika ir jos taikymai, II. TEV.
Corbet, S., Meegan, A., Larkin, C., Lucey, B., & Yarovaya, L. (2018). Exploring the dynamic relationships between cryptocurrencies and other financial assets. Economics Letters, 165, 28–34. https://doi.org/10.1016/j.econlet.2018.01.004
CoinMarketCap. (n.d.). Cryptocurrency prices, charts and market capitalizations. Retrieved December 5, 2021, from https://coinmarketcap.com/
Cvetkova, I. (2018). Cryptocurrencies legal regulation. BRICS Law Journal, 5(2), 128–153. https://doi.org/10.21684/2412-2343-2018-5-2-128-153
Dasman, S. (2021). Analysis of return and risk of cryptocurrency bitcoin asset as investment instrument. Accounting and Finance Innovations. https://doi.org/10.5772/intechopen.99910
David, S. A., Inacio, C. M. C., Nunes, R., & Machado, J. A. T. (2021). Fractional and fractal processes applied to cryptocurrencies price series. Journal of Advanced Research, 32, 85–98. https://doi.org/10.1016/j.jare.2020.12.012
Demiralay, S., & Bayracı, S. (2021). Should stock investors include cryptocurrencies in their portfolios after all? Evidence from a conditional diversification benefits measure. International Journal of Finance and Economics, 26(4), 6188–6204. https://doi.org/10.1002/ijfe.2116
Ghorabaee, M. K., Zavadskas, E. K., Olfat, L., & Turskis, Z. (2015). Multi-criteria inventory classification using a new method of evaluation based on distance from average solution (EDAS). Informatica, 26(3), 435–451. https://doi.org/10.15388/Informatica.2015.57
Goodell, J. W., & Goutte, S. (2021). Diversifying equity with cryptocurrencies during COVID-19. International Review of Financial Analysis, 76. https://doi.org/10.1016/j.irfa.2021.101781
Huynh, T. L. D., Hille, E., & Nasir, M. A. (2020). Diversification in the age of the 4th industrial revolution: The role of artificial intelligence, green bonds and cryptocurrencies. Technological Forecasting and Social Change, 159. https://doi.org/10.1016/j.techfore.2020.120188
İçellioǧlu, C. S., & Öner, S. (2019). An Investigation on the Volatility of Cryptocurrencies by means of Heterogeneous Panel Data Analysis. Procedia Computer Science, 158, 913–920. https://doi.org/10.1016/j.procs.2019.09.131
Inci, A. C., & Lagasse, R. (2019). Cryptocurrencies: applications and investment opportunities. Journal of Capital Markets Studies, 3(2), 98–112. https://doi.org/10.1108/JCMS-05-2019-0032
Kyriazis, Ν. A., Daskalou, K., Arampatzis, M., Prassa, P., & Papaioannou, E. (2019). Estimating the volatility of cryptocurrencies during bearish markets by employing GARCH models. Heliyon, 5(8). https://doi.org/10.1016/j.heliyon.2019.e02239
Lee, D. K. C., Guo, L., & Wang, Y. (2018). Cryptocurrency: A new investment opportunity? Journal of Alternative Investments, 20(3), 16–40. https://doi.org/10.3905/jai.2018.20.3.016
Liew, J., Li, R., Budavári, T., & Sharma, A. (2019). Cryptocurrency investing examined. The Journal of the British Blockchain Association, 2(2), 1–12. https://doi.org/10.31585/jbba-2-2-(2)2019
Liu, W. (2019). Portfolio diversification across cryptocurrencies. Finance Research Letters, 29, 200–205. https://doi.org/10.1016/j.frl.2018.07.010
Liu, Y., & Zhang, L. (2021). Cryptocurrency valuation: An explainable AI approach. https://doi.org/ 10.2139/ssrn.3657986
Maleki, N., Nikoubin, A., Rabbani, M., & Zeinali, Y. (2020). Bitcoin price prediction based on other cryptocurrencies using machine learning and time series analysis. Scientia Iranica. https://doi.org/10.24200/SCI.2020.55034.4040
Mohammed, I. (2018). Crypto currency as an Emerging Investment Instrument: The Missing Link……. SSRN. https://doi.org/10.2139/ssrn.3144187
Saksonova, S., & Kuzmina-Merlino, I. (2019). Cryptocurrency as an investment instrument in a modern financial market. St Petersburg University Journal of Economic Studies, 35(2), 269–282. https://doi.org/10.21638/spbu05.2019.205
Schober, P., & Schwarte, L. A. (2018). Correlation coefficients: Appropriate use and interpretation. Anesthesia and Analgesia, 126(5), 1763–1768. https://doi.org/10.1213/ANE.0000000000002864
Tapscott, A., & Tapscott, D. (2017). How blockchain is changing finance. Harvard Business Review. https://capital.report/Resources/Whitepapers/40fc8a6a-cdbd-47e6-83f6-74e2a9d36ccc_finance_topic2_source2.pdf
Trimborn, S., Li, M., & Härdle, W. K. (2020). Investing with cryptocurrencies – a liquidity constrained investment approach. Journal of Financial Econometrics, 18(2), 280–306. https://doi.org/10.1093/jjfinec/nbz016
Yahoo Finance. (n.d.). Stock market live, quotes, business & finance news. Retrieved January 16, 2022, from https://finance.yahoo.com/