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Yale Research: Minimum 6% Bitcoin for Investment Portfolios

Yale University has published a study recommending investment portfolios be made up of at least 6% Bitcoin.

The research paper, published by economics professor Aleh Tsyvinski and entitled ‘Risks and Returns of Cryptocurrencies’, acknowledges that not everybody may be a huge believer in Bitcoin. For those less crypto-enthusiastic, he recommends holding just 4%. Even the biggest Bitcoin skeptics would benefit from 1% in holdings merely for diversification purposes.

Bitcoin, Ripple, and Ethereum are marked in the paper as distinctly different from alternative investment opportunities such as stocks and precious metals as they have no exposure to macroeconomic factors, nor to most common stock market pressures. Tsyvinski employs the Sharpe Ratio to argue that despite high rates of volatility among the cryptocurrencies studied, they offer higher rates of returns than these traditional investment tools.

Returns from cryptocurrency investments are also described as independent of that of currencies and commodities in that they are specific to factors of the cryptocurrency market. The study reads: ”Specifically, we determine that there is a strong time-series momentum effect and that proxies for investor attention strongly forecast cryptocurrency returns.”

The paper comes to finish with an index of exposures to cryptocurrencies including 345 US-based industries and 137 in China.

What do his academic colleagues say?

Tsyvinski’s colleague at Arizona State University, Professor Dragan Boscovic, shares a similar sentiment when it comes to cryptocurrency investing. In June this year, Boscovic spoke out on the increasingly popular decision for institutional investors to enter the market.

The more this happens, the more Boscovic believes this will encourage consumers and merchants to take up cryptocurrency payment methods.

Not everybody in the space shares similar positive sentiments regarding crypto investments, however. Nobel Prize Winner Robert Shiller expressed his dismay at Bitcoin’s popularity in May, lambasting it as a failed experiment spawned from ”faddish human behavior”, noting that it resembles some of the biggest failed currency experiments seen in history.

 

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