Friday, July 1

Cryptocurrency Exposure Has Positive Impact On Investment Portfolios, Study Shows


Allocating funds to crypto investment positions has been shown to positively impact the performance of diversified investment portfolios.

According to an investigation study By the crypto asset management teams Iconic Funds and Cryptology Asset Group, the ability of crypto investments to positively impact the performance of investment portfolios cuts across various asset allocation models.

This ability to improve the profitability of diversified investment portfolios is even despite the volatility of cryptocurrencies, especially the recent market crash that occurred in May.

The research study titled: “Cryptocurrencies and Sharpe’s relationship of traditional investment models” examined changes in the risk-return profile of various portfolio allocation methods due to the addition of cryptocurrency assets.

This risk-return examination was conducted by measuring changes in the Sharpe ratio, the measure of excess returns obtained from holding a volatile asset, when crypto positions were included in the different asset portfolio models.

Since cryptocurrencies are supposedly an uncorrelated asset class, the risk-reward performance of investment portfolios should improve with the addition of cryptocurrencies despite their apparent volatile price movements.

By taking a passive investment strategy, the study mapped changes in the Sharpe index for traditional portfolio models with the introduction of cryptocurrency exposure versus a benchmark index without cryptocurrency allocation.

Source: Cryptocurrencies and Sharpe’s Relationship of Traditional Investment Models

To investigate the impact of increasing crypto positions for each portfolio model, the study also rebalanced the cryptocurrency allocation on a 1%, 3%, and 5% basis.

In detailing its findings, the study stated, “This report finds that the addition of cryptocurrencies to any covered portfolio had a positive impact on the returns as well as the risk-reward performance of the portfolio,” adding:

“This finding holds despite a significant correction in the crypto markets during the beginning of 2021. Furthermore, the addition of more cryptocurrencies led to even higher returns.”

According to the document, the results of the 2021 study also lend credence to the conclusions drawn in the 2020 research that showed the positive impact of crypto allocations to investment portfolios despite the mid-March market crash (Thursday Black).

Related: Mr. Wonderful’s Crypto Allocation Is Now Larger Than His Gold Holdings

Exposure to cryptocurrencies is becoming a significant trend among institutional investors. As previously reported by Cointelegraph, a recent Bank of America report showed that 20 major public companies in the United States have significant investments based on digital assets.

In September, a survey by European investment management team Nickel Digital Asset Management stated that 62% of global institutional investors with zero exposure to cryptocurrencies will start making inroads into cryptocurrencies and blockchain in the next 12 months.