Crypto exposure has positive impact on investment portfolios, study shows

Published at: Oct. 7, 2021

Allocating funds to crypto investment positions has been shown to have a positive impact on the performance of diversified investment portfolios.

According to a research study by crypto asset management outfits Iconic Funds and Cryptology Asset Group, the ability of crypto investments to positively impact the performance of investment portfolios cuts across several asset allocation models.

Crypto’s ability to improve the profitability of diversified investment portfolios comes despite its volatility, especially the recent market crash that occurred in May.

The research study titled “Cryptocurrencies and the Sharpe Ratio of Traditional Investment Models” examined changes in the risk-return profile of several portfolio allocation methods due to the addition of cryptocurrency assets.

This risk-return examination was conducted via measuring changes in the Sharpe ratio — the measure of excess returns earned for holding a volatile asset — when crypto positions were included in the different asset portfolio models.

With crypto supposedly an uncorrelated asset class, the risk-reward performance of investment portfolios should improve with the addition of cryptocurrencies despite their apparent volatile price movements.

By assuming a passive investment strategy, the study mapped the changes in the Sharpe ratio for traditional portfolio models with the introduction of crypto exposure against a reference index with no cryptocurrency allocation.

To investigate the impact of increasing the crypto positions for each portfolio model, the study also rebalanced the cryptocurrency allocation on a 1%, 3% and 5% basis.

Detailing its findings, the study stated, “This report finds that the addition of cryptocurrencies to any portfolio covered had a positive impact on the returns as well as the risk-reward performance of the portfolio,” adding:

“This finding holds despite a significant correction in the crypto markets during the beginning of 2021. Furthermore, the addition of more cryptocurrencies led to even higher returns.”

According to the document, the results of the 2021 study also lend credence to the conclusions drawn in the 2020 research that showed the positive impact of crypto allocations to investment portfolios despite the market crash of mid-March.

Crypto exposure is becoming a significant trend among institutional investors. As previously reported by Cointelegraph, a recent Bank of America report showed 20 major public companies in the United States having significant digital asset-based investments.

Back in September, a survey by European investment management outfit Nickel Digital Asset Management stated that 62% of global institutional investors with zero crypto exposure will begin making forays into cryptocurrency and blockchain within the next 12 months.