Bitcoin-boom or bust: implementation of cryptocurrencies in diversified portfolios

• Autor(a) principal: Dias, Daniel Alexandre Luís
• Data de Publicação: 2020
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/21439
• topic: Bitcoin; Portfolio; Performance; Risk; Risco

Bitcoin stands as one of the most revolutionizing tools of the last decade. Its incredible and eventful run makes it highly valued by some and equally criticized by others. Many defend it as the future of banking and the entire financial industry, while others call it a bubble waiting to burst. Despite this duality the biggest of the cryptocurrencies has been gaining a following with more and more investors willing to invest in it. As of October 2020, the Director of Research of Fidelity said that portfolio managers should consider allocating up to 5% of their value to Bitcoin, with the cryptocurrency's current market value being just a "drop in the bucket" of its potential, alerting that the move of retail investors towards Bitcoin is inevitable. Thus, we studied how viable is the implementation of Bitcoin on an investor' portfolio, making mainly use of well diversified index replicators of some of the biggest and most used benchmarks. The results have shown that despite concerns mostly of volatility there is relevance in considering adding the cryptocurrency to one's portfolio. Retail and institutional investors alike should not sleep on the emergence of this new asset class and should take measures to ensure that they study and comprehend it in order to assess if it fits their risk profile and not miss on the potential diversification effect and returns that one could have with Bitcoin. The main theoretical contribution of this work comes from the in depth analysis of Bitcoin and its diversification capabilities when faced to more common investment vehicles, while the main practical contribution lies on the application of the individual portfolio weights to an Exchange-traded fund (ETF) adept investor looking to diversify into Bitcoin.