Cryptocurrency: A New Investment Opportunity? An Investigation of the Hedging Capability of Cryptocurrencies and Their Influence on Stock, Bond and Gold Portfolios
13 Citations•2018•
Wee Seng Wong, Dennis Saerbeck, Dante Delgado Silva
Econometric Modeling: Derivatives eJournal
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Abstract
We investigate whether cryptocurrencies can be legitimate investments with potential use as a hedging tool. We show that Bitcoin and Litecoin can be useful as a hedge due to negative or zero correlations with other asset classes while Ripple shows traits of a diversifying investment. Due to their high intrinsic volatility, cryptocurrencies will always add variance to a univariate portfolio, hence increasing portfolio risk. This additional risk is rewarded with higher Sharpe ratios for gold and bond portfolios but not for stock portfolios.