Practical Applications of Cryptocurrency: A New Investment Opportunity?

Practical Applications Summary

In Cryptocurrency: A New Investment Opportunity? from the winter 2018 issue of The Journal of Alternative Investments, authors David LEE Kuo Chuen, Yu Wang (both of Singapore Management University) and Li Guo (of Singapore Management University) provide an in-depth introduction to Bitcoin and other cryptocurrencies, and explore their potential as an alternative investment class.

Their results show that the return correlations between cryptocurrencies and traditional assets are low, and that adding the Cryptocurrency Index (CRIX) to a traditional asset portfolio helps diversify risk, and, under some circumstances, may improve overall performance. Given the difficulty of valuation in the cryptocurrency market, however, the authors explore the possibility of generating positive risk-adjusted profits with a “sentiment” strategy that evaluates each cryptocurrency individually.

TOPICS: Currency, risk management, performance measurement, mutual funds/passive investing/indexing