Date of Graduation
5-2024
Document Type
Thesis
Degree Name
Bachelor of Science in Business Administration
Degree Level
Undergraduate
Department
Finance
Advisor/Mentor
Riley, Timothy
Abstract
With the recent approval of Bitcoin-backed exchange traded-funds, it is now easier than ever for mainstream investors to gain exposure to cryptocurrencies. This paper aims to employ the Markowitz efficient frontier model to determine the potential for cryptocurrency investment to increase the risk-adjusted performance of a diversified portfolio of stocks and bonds. The analysis finds that investors can expect a meaningful increase of 4.41% to the risk-adjusted performance of their portfolio when allocating 4.83% of their total investment to cryptocurrency. However, this potential increase is highly sensitive to cryptocurrency returns, volatility, and correlations to stock. As such, whether adding cryptocurrency investment to an investor’s diversified portfolio is advisable is strongly dependent on that investor’s expectations regarding the future performance of cryptocurrencies.
Keywords
Cryptocurrency; cryptocurrency portfolio; Bitcoin; Bitcoin portfolio; efficient frontier; Sharpe ratio
Citation
Taylor, B. (2024). The Value of Cryptocurrency in an Efficient Portfolio. Finance Undergraduate Honors Theses Retrieved from https://scholarworks.uark.edu/finnuht/115
