Cryptocurrencies as a Financial Asset: An Evidence from an Institutional Investors Perspective

Abstract

AbstractThe study provides a systematic analysis and review of the relevant empirical literature based on the fundamental topics that have been associated with the cryptocurrencies market. The research was carried out by using the method of description, literature analysis, and research conducted. The study investigates the empirical verification of the efficacy of investment diversification using the main stock exchange indices in the Eurozone countries and Bitcoin. The aim of the research is to examine whether it is justified and to what extent to include Bitcoin in the portfolio of an institutional investor. The analysis includes data on the daily movement of selected action indices as well as the movement of Bitcoin. The methodology involves the analysis of high-frequency data, given that daily trading data were used. The results show that it is justified to include Bitcoin or any other cryptocurrency in the portfolio structure. Also, the results show which share of Bitcoin in the portfolio is justified from the aspect of institutional investors. The data used in the analysis cover the period from 2020. The results of the research show that Bitcoin is a good source of diversification in a portfolio that contains traditional financial instruments, both for an investor who is not prone to risk, and for those investors who have a greater appetite for risk. The conclusion is that the rational behavior of institutional investors requires consideration of investing in Bitcoin using the Markowitz model.KeywordsBlockchainFinancial marketsCryptocurrenciesDigital CurrenciesBitcoinPortfolio optimizationInstitutional investors