Optimal Allocation to Cryptocurrencies in Diversified Portfolios

Risk Magazine, October 2023, 1-6

11 Pages Posted: 23 Sep 2022 Last revised: 30 Nov 2023

Date Written: December 31, 2022


We apply four quantitative methods for optimal allocation to Bitcoin and Ether cryptocurrencies within alternative and balanced portfolios including metrics for portfolio diversification, expected risk-returns, and skewness of returns distribution. Using roll-forward historical simulations, we show that all four allocation methods produce a persistent positive allocation to Bitcoin and Ether in alternative and balanced portfolios with a median allocation of about 2.7%. We conclude that core cryptocurrencies may provide positive contribution to risk-adjusted performances of broad investment portfolios. We emphasize the diversification benefits of cryptocurrencies as an asset class within broad risk-managed portfolios with systematic re-balancing.

Keywords: Optimal Asset Allocation, Bitcoin, Cryptocurrency

JEL Classification: G10, G11, G12

Suggested Citation

Sepp, Artur, Optimal Allocation to Cryptocurrencies in Diversified Portfolios (December 31, 2022). Risk Magazine, October 2023, 1-6, Available at SSRN: https://ssrn.com/abstract=4217841 or http://dx.doi.org/10.2139/ssrn.4217841

Artur Sepp (Contact Author)

Merrill Lynch & Co. ( email )


HOME PAGE: http://artursepp.com

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