Authors : Intissar Grissa; Ezzeddine Abaoub

Volume/Issue : Volume 9 - 2024, Issue 2 - February

Google Scholar : http://tinyurl.com/3de9b7ev

Scribd : http://tinyurl.com/ykmcepk3

DOI : https://doi.org/10.5281/zenodo.10776650

Abstract : The advent of the Fourth Industrial Revolution has precipitated a plethora of innovative technologies, among which are notable advancements revolutionizing the domain of finance. Particularly prominent within this milieu are the advent of Blockchain technology and the concomitant emergence of Cryptocurrencies, heralding the inception of novel forms of Decentralized Finance (DeFi) that significantly disrupt traditional financial (TradFi) paradigms. The advent of these innovative and technological financial instruments has imbued both laypersons and seasoned investors with a profound sense of curiosity, inciting them to delve into a broader spectrum of investment opportunities, thereby engendering portfolio diversification. This burgeoning interest stems from a dual foundation: firstly, cryptocurrencies deviate from conventional investment assets insofar as they lack a tangible underpinning and operate independently of governmental or monetary oversight. Secondly, cryptocurrencies have historically exhibited unprecedented price appreciation and returns vis-à-vis traditional investment assets. However, these remarkable returns have been counterbalanced by pronounced volatility, distinguishing cryptocurrencies from other asset classes. Such distinct characteristics underpin the inquiry conducted herein, which aims to augment the extant literature on cryptocurrencies as investment assets by scrutinizing the impact of including six cryptocurrencies (Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Ripple (XRP), Litecoin (LTC), and Dogecoin (DOGE)) within the confines of five traditional asset portfolios. The selection of these cryptocurrencies was predicated upon their respective market capitalizations. The analytical timeframe spans from December 2014 to December 2022. The findings of this investigation evince that cryptocurrencies offer a viable avenue for portfolio risk mitigation, given the consistently low correlations between cryptocurrencies and traditional assets, coupled with the higher average daily returns exhibited by most cryptocurrencies vis-à- vis traditional investments. Furthermore, it is discerned that Ethereum presents a superior diversification opportunity relative to Bitcoin.

Keywords : Portfolio Optimization Traditional Asset Portfolios Cryptocurrencies Blockchain DeFi Investment.