Cryptoassets in a Portfolio Context

Abstract

Since the inception of modern portfolio theory, traditional asset classes have been the standard investment products for portfolio construction. With the introduction of cryptoassets such as cryptocurrencies, tokenized securities, smart contracts, and blockchain-based token assets, the crypto “revolution” has created a new asset class for consideration in a modern portfolio. This chapter explains cryptoassets in a portfolio, including their limitations and parameters as an asset class in a diversified portfolio. Finally, it reports an improvement in a new portfolio’s reward/risk ratio using the Sharpe ratio when adding cryptoassets to simulated equity, bonds, and real estate portfolios. A caveat is that a cryptoasset’s contribution to a well-diversified traditional portfolio differs from the performance of investing in a single and isolated cryptoasset.

Citation

Dhillon, R. and Nikbakht, E. (2023), "Cryptoassets in a Portfolio Context", Baker, H.K., Benedetti, H., Nikbakht, E. and Smith, S.S. (Ed.) The Emerald Handbook on Cryptoassets: Investment Opportunities and Challenges, Emerald Publishing Limited, Leeds, pp. 185-198. https://doi.org/10.1108/978-1-80455-320-620221013