The Case for Bitcoin for Institutional Investors: Bubble Investing or Fundamentally Sound?

17 Pages Posted: 11 Dec 2017  

Jim Kyung-Soo Liew

Johns Hopkins University - Carey Business School

Levar Hewlett

Maryland State Retirement and Pension System

Date Written: December 5, 2017

Abstract

In this work we assume the institutional investor role and analyze a possible investment in bitcoin (BTC). We document several salient features of BTC employing monthly returns over the period from August 2010 to October 2017. First, it provides unique diversification benefits for traditional institutional portfolios. This diversification benefit appears to be stable over our sample period. Second, bitcoin is very volatile, indeed, but the historical return to risk ratio appears attractive with a Sharpe Ratio of 1.176. Finally, using standard portfolio optimization tools we find that the optimal allocation to BTC is 1.3% over the sample we examined. We provide controversial evidence that institutional investors are under allocated to BTC.

Keywords: bitcoin, asset allocation, portfolio optimization, cryptocurrencies

Suggested Citation

Liew, Jim Kyung-Soo and Hewlett, Levar, The Case for Bitcoin for Institutional Investors: Bubble Investing or Fundamentally Sound? (December 5, 2017). Available at SSRN: https://ssrn.com/abstract=3082808 or http://dx.doi.org/10.2139/ssrn.3082808

Jim Kyung-Soo Liew (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Levar Hewlett

Maryland State Retirement and Pension System ( email )

MD
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
967
rank
19,856
Abstract Views
3,255
PlumX