Cryptocurrency: A New Investment Opportunity?

Lee, D. K. C., Guo, L., & Wang, Y. (2018). Cryptocurrency: A new investment opportunity?. Journal of Alternative Investments, 20(3), 16-40. https://doi.org/10.3905/jai.2018.20.3.016.

Posted: 30 Jun 2017 Last revised: 1 Jul 2019

See all articles by David Kuo Chuen Lee

David Kuo Chuen Lee

Singapore University of Social Sciences (SUSS); National Univeristy of Singapore; Shanghai University of Finance and Economics

Li Guo

Fudan University - School of Economics; Shanghai Institute of International Finance and Economics

Yu Wang

Singapore University of Social Sciences (SUSS)

Date Written: August 24, 2017

Abstract

Bitcoin was the first cryptocurrency using blockchain and has been the market leader since the first bitcoin was mined in 2009. After the birth of bitcoin in the Genesis Block, more than 1000 altcoins and crypto-tokens have been created with at least 919 trading actively on unregulated or registered exchanges. This entire class of cryptocurrency and tokens has been classified by some tax authorities as having the same status as commodities. If cryptocurrency is viewed in the same class as commodities, how different it is in terms of its risk and return structure? This paper sets out to help the readers to understand cryptocurrencies, and to explore the risk and return characteristics using a portfolio of cryptocurrency represented by the CRIX Index. Substantial discussions are centred on bitcoin and its close variants. Some questions are raised about the potential of cryptocurrencies as an investment class. Results show that the correlations between the cryptocurrencies and traditional assets are low, and incorporation of CRIX index will improve the performance of the portfolio that consists mainly of mainstream assets. Sentiment analysis also indicates the CRIX index has a relatively high Sharpe ratio. While we may view the results with care, a new form of financing for crypto and blockchain start-ups is born. The disruption brought about by bitcoin may be felt beyond payments through what is known as Initial Crypto-Token Offering (ICO) or Initial Token Sales (ITS).

Keywords: Cryptocurrency, Bitcoin, Altcoin, Alternative Investment, Crypto-Token

JEL Classification: G02, G10, G11, G12

Suggested Citation

Lee, David Kuo Chuen and Guo, Li and Wang, Yu, Cryptocurrency: A New Investment Opportunity? (August 24, 2017). Lee, D. K. C., Guo, L., & Wang, Y. (2018). Cryptocurrency: A new investment opportunity?. Journal of Alternative Investments, 20(3), 16-40. https://doi.org/10.3905/jai.2018.20.3.016., Available at SSRN: https://ssrn.com/abstract=2994097 or http://dx.doi.org/10.2139/ssrn.2994097

David Kuo Chuen Lee

Singapore University of Social Sciences (SUSS) ( email )

461 Clementi Road
Singapore, 599491
Singapore

National Univeristy of Singapore ( email )

1 Business Link
Singapore, 117592
Singapore

Shanghai University of Finance and Economics ( email )

Shanghai, 200433
China

Li Guo (Contact Author)

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Shanghai Institute of International Finance and Economics ( email )

777 Guoding Rd
Wu Jiao Chang, Yangpu District
Shanghai, Shanghai 200017
China

Yu Wang

Singapore University of Social Sciences (SUSS) ( email )

461 Clementi Road
Singapore, Singapore 599491
Singapore

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