To read the full version of this content please select one of the options below:

The risk analysis of Bitcoin and major currencies: value at risk approach

Umut Uyar (Pamukkale Universitesi, Denizli, Turkey)
Ibrahim Korkmaz Kahraman (Pamukkale Universitesi, Denizli, Turkey)

Journal of Money Laundering Control

ISSN: 1368-5201

Article publication date: 7 January 2019

Abstract

Purpose

This study aims to compare investors of major conventional currencies and Bitcoin (BTC) investors by using the value at risk (VaR) method common risk measure.

Design/methodology/approach

The paper used a risk analysis named as VaR. The analysis has various computations that Historical Simulation and Monte Carlo Simulation methods were used for this paper.

Findings

Findings of the analysis are assessed in two different aspects of singular currency risk and portfolios built. First, BTC is found to be significantly risky with respect to the major currencies; and it is six times riskier than the singular most risky currency. Second, in terms of inclusion of BTC into a portfolio, which equally weights all currencies, it elevates overall portfolio risk by 98 per cent.

Practical implications

In spite of the remarkable risk level, it could be considered that investors are desirous of making an investment on BTC could mitigate their overall exposed risk relatively by building a portfolio.

Originality/value

The paper questions the risk level of Bitcoin, which is a digital currency. BTC, a matter of debate in the contemporary period, is seen as a digital currency free from control or supervision of a regulatory board. With the comparison of major currencies and BTC shows that how could be risky of a financial instrument without regulations. However, there is some advice for investors who would like to invest digital currencies despite the risk level in this study.

Keywords

Citation

Uyar, U. and Kahraman, I.K. (2019), "The risk analysis of Bitcoin and major currencies: value at risk approach", Journal of Money Laundering Control, Vol. 22 No. 1, pp. 38-52. https://doi.org/10.1108/JMLC-01-2018-0005

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited