Abstract

Cryptocurrencies have started gaining ground as investment vehicles. Cryptocurrencies exhibit characteristics that differentiate them from traditional financial assets. In 2009, Bitcoin (BTC), the first digital currency, was launched. In 2021, the Securities and Exchange Commission (SEC) approved ProShares Bitcoin Strategy (BITO), the first U.S. Bitcoin futures exchange-traded fund (ETF). In 2024, SEC gave final approval for spot Ether (ETH) ETFs to start trading, further legitimizing the asset class. Although cryptocurrencies share many features of alternative assets, they are hindered by high volatility and regulatory uncertainties. Extant literature studies cryptocurrencies as alternative investments from various perspectives. Using market data, this empirical paper aims to contribute to the literature by studying the extent to which cryptocurrencies improve the risk-return profile of a diversified portfolio. Specifically, we do so by examining the economic impact of including Bitcoin for a passive investor investing in the U.S. Stock market index (S&P 500 index).

This work is licensed under a Creative Commons Attribution 4.0 License.