Bitcoin as Asset Class

Abstract

A five cent $0.05 investment in Bitcoin on July 17, 2010, the first date in which there appears to have been a published value had grown to $7,383.39 on July 18, 2018. While Bitcoin as a currency has existed for less than a decade ̶ it had a very limited liquidity and usage during the first few years. During calendar year 2017 alone, Bitcoin increased in value from about $970 to $14,292, an increase of approximately 1,735 percent. Highly volatile, and having reached a market capitalization of almost $300 billion by December 13, 2017, Bitcoin had become equivalent to the world’s sixth largest currency and has, despite its volatility, attracted considerable attention as an investment asset.

Our research examines the history of Bitcoin from inception until mid-year 2018 and compares and contrasts price performance and correlation with other asset classes: Dow Jones 30 Industrial Average; S&P 5000; NASDAQ; Russell 2000; gold; real estate; Nikki; MSCI; and bond market. We believe our study covers performance of this important alternative class over the greatest period of time to date. We conclude that Bitcoin may be an attractive investment from a diversification perspective because of its low correlation with equities markets. However, Bitcoin’s characteristics of high volatility and potential illiquidity make it difficult to compare with more traditional assets such as equities and bonds.

Keywords: Alternative Investments, Asset Class, Bitcoin, Blockchain, Digital Currency, Fund Investment Performance, Portfolio Allocation and Diversification, Real Estate, Returns, Risk Management, Smart Contracts, Virtual Currency, Volatility

JEL Classification: A10, C00, C1, C40, C51, C60, D58, E4, E5, G11, G2, Q11, Z11