Correlation and Impact of Bitcoin with Other Cryptocurrency Portfolios

Research Article
Open access

Correlation and Impact of Bitcoin with Other Cryptocurrency Portfolios

Xueyao Zhao 1*
  • 1 University of Sheffield    
  • *corresponding author zhaoxueyao84@gmail.com
Published on 13 September 2023 | https://doi.org/10.54254/2754-1169/11/20230524
AEMPS Vol.11
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-915371-49-2
ISBN (Online): 978-1-915371-50-8

Abstract

Bitcoin is a peer-to-peer form of digital currency proposed in 2008. Unlike other currencies, Bitcoin does not rely on a specific institution to issue it, it is based on a specific algorithm that generates it through a large number of calculations. In some countries, government agencies, central banks and academia regard Bitcoin is a virtual currency rather than a currency. This is because of Bitcoin’s high volatility, which does not have the two basic functions of the unit of account and the store of value that are unique to the currency. In recent years, Bitcoin has seen increasing media coverage and other cryptocurrency portfolios, as well as the significant capital gains have been seen in the high volatility environment. In this paper, we shed light on the low correlation of Bitcoin with traditional investment assets, making Bitcoin a potentially high-quality source of portfolio diversification. The results of the finding suggest that Bitcoin investments offer significant diversification benefits and should be included in optimal portfolios. In addition to this, we find that hedging strategies involving gold, oil, stocks and Bitcoin significantly reduce portfolio risk.

Keywords:

Bitcoin, portfolio diversification, portfolio optimization, volatility

Zhao,X. (2023). Correlation and Impact of Bitcoin with Other Cryptocurrency Portfolios. Advances in Economics, Management and Political Sciences,11,123-128.
Export citation

References

[1]. Eisl, A., Gasser, S.M. and Weinmayer, K., 2015. Caveat emptor: Does Bitcoin improve portfolio diversification?. Available at SSRN 2408997.

[2]. Statista.2022. Bitcoin price history 2013-2022 | Statista. [online] Available at: <https://www.statista.com/statistics/326707/bitcoin-price-index/#:~:text=Bitcoin%20BTC%2FUSD%20price%20history%20up%20until%20August%2023%2C%202022&text=Bitcoin%20(BTC)%20price%20again%20reached,65%2C000%20USD%20in%20November%202021.> [Accessed 29 August 2022].

[3]. Carpenter, A., 2016. Portfolio diversification with Bitcoin. Journal of Undergraduate Research in Finance, 6(1), pp.1-27.

[4]. Sarkar, A., 2022. Bitcoin average transaction fees lowest in two years at $1.04. [online] Cointelegraph. Available at: <https://cointelegraph.com/news/bitcoin-average-transaction-fees-lowest-in-two-years-at-1-04> [Accessed 29 August 2022].

[5]. Artzner, P., Delbaen F., Eber, J.M., and Heath, D. (1997). Thinking Coherently. Risk, 10, November, 68-71.

[6]. Uryasev, S., Sarykalin, S., Serraino, G. and Kalinchenko, K., 2010. VaR vs CVaR in risk management and optimization. In CARISMA conference.

[7]. The Economist. 2022. Why it is wise to add bitcoin to an investment portfolio. [online] Available at: <https://www.economist.com/finance-and-economics/2021/09/25/why-it-is-wise-to-add-bitcoin-to-an-investment-portfolio> [Accessed 25 August 2022].

[8]. Briere, M., Oosterlinck, K. and Szafarz, A., 2015. Virtual currency, tangible return: Portfolio diversification with bitcoin. Journal of Asset Management, 16(6), pp.365-373.

[9]. Harper, J., 2013. What is the value of bitcoin?. [online] Cato.org. Available at: <https://www.cato.org/blog/what-value-bitcoin> [Accessed 27 August 2022].

[10]. Kajtazi, A. and Moro, A., 2019. The role of bitcoin in well diversified portfolios: A comparative global study. International Review of Financial Analysis, 61, pp.143-157.

[11]. Guesmi, K., Saadi, S., Abid, I. and Ftiti, Z., 2019. Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, pp.431-437.

[12]. Selmi, R., Mensi, W., Hammoudeh, S. and Bouoiyour, J., 2018. Is Bitcoin a hedge, a safe haven or a diversifier for oil price movements? A comparison with gold. Energy Economics, 74, pp.787-801.

[13]. Chaim, P. and Laurini, M., 2019. Shibboleth Authentication Request. [online] Www-sciencedirect-com.sheffield.idm.oclc.org. Available at: <https://www-sciencedirect-com.sheffield.idm.oclc.org/science/article/pii/S0378437118314481> [Accessed 29 August 2022].

[14]. Frehen, R., Goetzmann, W. and Geert Rouwenhorst, K., 2013. New evidence on the first financial bubble. Journal of Financial Economics, 108(3), pp.585-607.

[15]. Blanchard, O.J. and Watson, M.W., 1982. Bubbles, rational expectations and financial markets.

[16]. Li, Z.Z., Tao, R., Su, C.W. and Lobonţ, O.R., 2019. Does Bitcoin bubble burst?. Quality & Quantity, 53(1), pp.91-105.

[17]. Velde, F., 2013. Bitcoin: A primer.

[18]. Yermack, D., 2015. Is Bitcoin a real currency? An economic appraisal. In Handbook of digital currency (pp. 31-43). Academic Press.

Cite this article

Zhao,X. (2023). Correlation and Impact of Bitcoin with Other Cryptocurrency Portfolios. Advances in Economics, Management and Political Sciences,11,123-128.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

Disclaimer/Publisher's Note

The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of EWA Publishing and/or the editor(s). EWA Publishing and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.

About volume

Volume title: Proceedings of the 2nd International Conference on Business and Policy Studies

ISBN：978-1-915371-49-2(Print) / 978-1-915371-50-8(Online)
Editor：Canh Thien Dang, Javier Cifuentes-Faura
Conference website: https://2023.confbps.org/
Conference date: 26 February 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.11
ISSN：2754-1169(Print) / 2754-1177(Online)

© 2024 by the author(s). Licensee EWA Publishing, Oxford, UK. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license. Authors who publish this series agree to the following terms:
1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this series.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this series.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See Open access policy for details).

References

[1]. Eisl, A., Gasser, S.M. and Weinmayer, K., 2015. Caveat emptor: Does Bitcoin improve portfolio diversification?. Available at SSRN 2408997.

[2]. Statista.2022. Bitcoin price history 2013-2022 | Statista. [online] Available at: <https://www.statista.com/statistics/326707/bitcoin-price-index/#:~:text=Bitcoin%20BTC%2FUSD%20price%20history%20up%20until%20August%2023%2C%202022&text=Bitcoin%20(BTC)%20price%20again%20reached,65%2C000%20USD%20in%20November%202021.> [Accessed 29 August 2022].

[3]. Carpenter, A., 2016. Portfolio diversification with Bitcoin. Journal of Undergraduate Research in Finance, 6(1), pp.1-27.

[4]. Sarkar, A., 2022. Bitcoin average transaction fees lowest in two years at $1.04. [online] Cointelegraph. Available at: <https://cointelegraph.com/news/bitcoin-average-transaction-fees-lowest-in-two-years-at-1-04> [Accessed 29 August 2022].

[5]. Artzner, P., Delbaen F., Eber, J.M., and Heath, D. (1997). Thinking Coherently. Risk, 10, November, 68-71.

[6]. Uryasev, S., Sarykalin, S., Serraino, G. and Kalinchenko, K., 2010. VaR vs CVaR in risk management and optimization. In CARISMA conference.

[7]. The Economist. 2022. Why it is wise to add bitcoin to an investment portfolio. [online] Available at: <https://www.economist.com/finance-and-economics/2021/09/25/why-it-is-wise-to-add-bitcoin-to-an-investment-portfolio> [Accessed 25 August 2022].

[8]. Briere, M., Oosterlinck, K. and Szafarz, A., 2015. Virtual currency, tangible return: Portfolio diversification with bitcoin. Journal of Asset Management, 16(6), pp.365-373.

[9]. Harper, J., 2013. What is the value of bitcoin?. [online] Cato.org. Available at: <https://www.cato.org/blog/what-value-bitcoin> [Accessed 27 August 2022].

[10]. Kajtazi, A. and Moro, A., 2019. The role of bitcoin in well diversified portfolios: A comparative global study. International Review of Financial Analysis, 61, pp.143-157.

[11]. Guesmi, K., Saadi, S., Abid, I. and Ftiti, Z., 2019. Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, pp.431-437.

[12]. Selmi, R., Mensi, W., Hammoudeh, S. and Bouoiyour, J., 2018. Is Bitcoin a hedge, a safe haven or a diversifier for oil price movements? A comparison with gold. Energy Economics, 74, pp.787-801.

[13]. Chaim, P. and Laurini, M., 2019. Shibboleth Authentication Request. [online] Www-sciencedirect-com.sheffield.idm.oclc.org. Available at: <https://www-sciencedirect-com.sheffield.idm.oclc.org/science/article/pii/S0378437118314481> [Accessed 29 August 2022].

[14]. Frehen, R., Goetzmann, W. and Geert Rouwenhorst, K., 2013. New evidence on the first financial bubble. Journal of Financial Economics, 108(3), pp.585-607.

[15]. Blanchard, O.J. and Watson, M.W., 1982. Bubbles, rational expectations and financial markets.

[16]. Li, Z.Z., Tao, R., Su, C.W. and Lobonţ, O.R., 2019. Does Bitcoin bubble burst?. Quality & Quantity, 53(1), pp.91-105.

[17]. Velde, F., 2013. Bitcoin: A primer.

[18]. Yermack, D., 2015. Is Bitcoin a real currency? An economic appraisal. In Handbook of digital currency (pp. 31-43). Academic Press.

For authors
Guide for authors Policies for authors Aims and scope Subscription Open access policy
For editors
Policies for editors Editorial board
For reviewers
Policies for reviewers Privacy policy

Cookies are used by this site.
Copyright © 2024 EWA Publishing, its licensors, and contributors. All rights reserved, including text and data mining, AI training, and similar technologies.