ASSESSING THE POTENTIAL DIVERSIFICATION BENEFITS OF CRYPTOCURRENCY AS AN INVESTMENT ASSET CLASS FROM 2018-2023

Abstract

This study explores the role of cryptocurrency, specifically Bitcoin, as an investment asset class and its potential as a diversifying asset. The study compares the risk-adjusted returns of Bitcoin and the CRIX index against the FAANG stocks and the S&P 500 TR Index. A literature review is conducted on the diversification benefits of cryptocurrencies as an asset class. The study covers the time span of 2018-2023 and includes recent events such as the concurrent fall of stocks and bonds to highlight the importance of locating diversifying assets like cryptocurrencies.

The findings suggest that while there is no significant difference in risk-adjusted returns between Bitcoin and the FAANG stocks, there is a significant difference between Bitcoin and the S&P 500 on a risk-adjusted basis. The study concludes that while Bitcoin may be suitable for risk-seeking investors, better assets exist for risk-averse investors building a diversified portfolio. Moreover, cryptocurrencies like Bitcoin have low correlations with traditional assets, providing potential diversification benefits for investors