Abstract

A comparative analysis between 2013-2017 and 2018-2023 reveals a significant transformation in Bitcoin and cryptocurrency investments. In the earlier phase, methods like the Markowitz Model suggested significant allocation to Bitcoin due to its high returns, diversification benefits, and low correlation with other assets. However, with the financialization of Bitcoin in December 2017, the cryptocurrency market underwent a fundamental shift, integrating into the mainstream financial system and increasing its correlation with traditional assets. In the subsequent period from 2018 to 2023, Bitcoin emerged as an average asset class with relatively high risk compared to others. Given these changes and increased institutional interest, our analysis suggests it’s prudent to cap allocation to Bitcoin to maximally 2-3% of the portfolio. The analysis highlights the need for caution and realistic expectations when interpreting historical data and extrapolating long-term conclusions.

Keywords: Asset allocation, Cryptocurrencies, Diversification, Bitcoin