Portfolio Diversification With Bitcoin
Bitcoin is a decentralized digital currency that was created in 2008. It has no central controlling authority, and allows payments to be sent from user to user without the need for a trusted third party or financial institution. When compared to traditional assets, Bitcoin exhibits persistently low correlations paired with exceedingly high volatility and returns. Using a modified mean-variance framework, we show that Bitcoin can be a viable diversification tool, but its investment appeal may be skewed by return activity that occured during a speculative bubble in 2013.