Bitcoin - is it worth our dime? Bitcoin's effect on portfolio returns and its properties in a Swedish setting.

Abstract

Bitcoin made its way into the consciousness of investors and the general public around 2015. Growing in popularity from there and inspiring the creation of many other crypto currencies along the way, it has been subject to several hypes and sharp declines since. Previous research has shown that despite its extreme volatility, it is wise to include Bitcoin in most investor portfolios. Since much of this research was carried out before the major hypes post 2017, this paper examines if this is still true by optimizing portfolios of Swedish assets under four different constraints, with the objective to maximize a risk-return ratio which builds on Conditional Value-at-Risk as risk measure, using historical data from March 2012 until March 2022. We also investigate whether it could act as a hedge and safe haven against other assets in the asset pool. We find that Bitcoin is still worthwhile to include in our portfolios, albeit somewhat less convincingly which is likely due to even more extreme volatility over the last few years. We further conclude that Bitcoin could be used as a hedge against real-estate, gold and USD and possibly as safe haven in times of market distress against, again, real-estate, USD and also against bonds with 5+ years maturity.