Does Bitcoin Still Enhance an Investment Portfolio in a Post-Covid World?

Abstract

We investigate the ability of bitcoin to enhance investment portfolios of traditional assets. We find evidence of a structural break in the correlation and volatility processes around the onset of the COVID-19 pandemic. The correlations between bitcoin and traditional assets have increased, thereby reducing bitcoin’s diversification benefits. As a result prior studies using data from pre-2020 may have inadvertently overestimated the value of bitcoin in improving Sharpe ratios and certainty equivalent returns in the post-pandemic era.

Keywords: Bitcoin, COVID-19, DCC, Diversification benefits, Portfolio performance