Date of Graduation

5-2018

Document Type

Thesis

Degree Name

Bachelor of Science in Business Administration

Degree Level

Undergraduate

Department

Finance

Advisor

Sergio Santamaria

Reader

Craig Rennie

Abstract

This research explores the significance of cryptocurrencies upon the “traditional” investor’s portfolio, particularly elaborating on the potential returns and advocating for its allocation within any balanced (or diversified) portfolio. Cryptocurrencies are a relatively new asset and are still considered to be extremely risky. They are characterized by ever-fluctuating prices, ongoing government regulation, and overall market skepticism. However, the potential of major cryptocurrencies (Bitcoin, Ripple, Ethereum, and Litecoin) to produce major returns cannot be easily ignored. This paper builds upon the research of those in academia, as well as highly respected investors. The hope is to outline both the pros and cons of investing in “risky” assets, such as Bitcoin, and why it is an important part of any, truly, diversified portfolio. Utilizing data from Bloomberg Professional Services, government websites, and other reliable sources, this paper examines a balanced portfolio, as well as a group of five theoretical portfolios. The 5 portfolios consist of different percentage allocations of equity, fixed-income, and Bitcoin. Furthermore, the portfolio is divided into “active” and “passive” strategies, with regards to Bitcoin (only). The results show that the portfolios with higher allocations of Bitcoin perform better, overall, as compared to the portfolios with lower allocations of Bitcoin. Additionally, the results also show that an active strategy (with the same portfolios) yields much more promising returns than a passive strategy. Although cryptocurrencies are an extremely new asset, it is important to understand their true investment value (or worth). With so much hysteria surrounding them, evaluating their actual performance within a portfolio is critical for a long-term understanding. It can also provide direction for future research in the field of cryptocurrencies.

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