INTRODUCTION:
The high volatility of Bitcoin prices makes investors think about investing in this digital currency. The situation is similar for almost every cryptocurrency present in the market. As a diverse investment opportunity, cryptocurrencies have been quite popular in the business world. With the fluctuating price, cryptocurrency investors indulge in a lot of risks most of the time. Several types of research in the past have inspected the usefulness of adding alternative assets to conventional portfolios that include stocks.
CAN CRYPTOCURRENCY BE BENEFICIAL FOR YOUR PORTFOLIO?
Recently, cryptocurrencies have been the subject of research and academic studies. These researches based on the advantages and risks have revealed that adding cryptocurrencies to your portfolio can be beneficial.
- Among all other cryptocurrencies, Bitcoin has gained severe popularity in the business market. From the perspective of investment, cryptocurrencies are unpredictable assets with no natural value.
- They are a barrier against the volatility of the worldwide financial system, just as gold is seen as a shield against market volatility.
- Platanakis and Urquhart (2020) included the cryptocurrency Bitcoin in traditional investment portfolios and concluded that it can bring profits in terms of risk-return to the investor.
- In the same light, Kajtazi and Moro (2019) showed that the inclusion of Bitcoin brings good performance to portfolios even if there are high risks of volatility.
- Ozturk (2020) suggested that there might not be any adequate contributions to portfolio diversification provided by Bitcoin mostly due to its volatile nature. But due to the limited connectivity between Bitcoin and other assets, it might be beneficial in providing potential profits from diversification in the future.
- Platanakis and Urquhart formed a report claiming that Bitcoin might give rise to considerable risk-adjusted portfolio paybacks in a diversified stock-bond portfolio under several asset allotment techniques, considering the various levels of risk tolerance.
- It has also been found that Bitcoin may be able to offer the prospect for diversification to investors who see risks and adventures in investments while it may not be able to offer benefits to an investor who is avoiding risks of all kinds.
- By adding cryptocurrencies in the portfolio, it expands the variance, VaR and CVaR of the portfolio. It can thus be said that digital currencies offer merit in the return but also increase the risks of a well-diversified portfolio.
DIVERSIFY YOUR PORTFOLIO BY INCLUDING DIGITAL ASSETS:
Cruz suggests that among several cryptocurrencies for investors, Bitcoin should be the most notable one to invest in. Introduced in the year 2009, Bitcoin is the primary cryptocurrency that has been the priority of every investor. After Bitcoin, Litecoin, Ethereum and Bitcoin Cash have made their way into the investing lists of businessmen. Cryptocurrencies like Bitcoin can be quite intimidating for beginners, some apps can be helpful for them; check Official Website to know more.
- Cruz said that adding digital currency to the portfolio should be a two-step diversification. The first thing is to diversify from your conventional classes of assets. Then the next step is to determine and evaluate the risk profile for example if it is 4% or 11%, and diversify within the cryptocurrency among the topmost assets.
- Investors should also look at the pros and cons of cryptocurrency. With so many cryptocurrencies in the market, it is difficult to go through all of them. It is better to select the top 5 assets in the market and look at the benefits and disadvantages.
- Two crucial challenges often leave the investors in dilemma and nervousness about investing in cryptocurrencies. Firstly, the lack of supervising authority and a scarcity of data provided to the investor.
CONCLUSION:
If a question is raised whether or not it is worth including cryptocurrencies in your portfolio, then the answer is yes! If the investor is ready to undertake some risks and can deal with loss and volatility. Adding cryptocurrencies to your portfolio can be beneficial depending on the present scenario of the market.
