The impact of cryptocurrency on the formation of an efficient frontier of emerging markets

Kripto valute goruća su tema u suvremenom vremenu ulagačkih strategija. S obzirom na to da se tržište kripto valuta svrstava u izranjajuća tržišta u ovom se radu sastavio portfelj izranjajućih tržišta od indeksa četiriju zemalja Europske unije i jedne kripto valute. Cilj je bio istražiti kako ubacivanje kriptovalute Bitcoin u portfelj utječe na efikasnost portfelja navedenih zemalja, te crtanjem efikasne granice uočiti gdje se nalazi Bitcoin u odnosu na ostale indekse iz portfelja. U početku navele su se teorijske pretpostavke metode kojom je kasnije provedena empirijska analiza. Isto tako objasnilo se značenje termina izranjajućih tržišta te su se prikazale formule za izračunavanje indeksa zemalja EU. Zemlje čiji su indeksi poslužili u analizi jesu: Hrvatska, Mađarska, Rumunjska i Poljska. Metoda koje se koristila za crtanje efikasne granice jest Markowitzeva moderna teorija portfelja. Primjenom ove metode na efikasnoj granici se kreirao portfelj minimalne varijance za portfelj s kriptovalutom i bez nje. Iako Markowitzeva teorija ima određene nedostatke, provedenom empirijskom analizom dolazi se do zaključka kako Bitcoin povećava efikasnost portfelja na izranjajućim tržištima odabranih zemalja Europske unije gdje su očekivani rizici odnosno standardne devijacije kod portfelja u koji je uključena kripto valuta čak i manji uz veće prinose od portfelja koji se ne sastoji od kriptovalute. Bez obzira na povećanu efikasnost cijelog portfelja, ponderi portfelja minimalne varijance ostali su nepromijenjeni. S obzirom na to da cijene kripto valuta karakterizira visoka volatilnost, ulaganje u ovakav portfelj će ovisiti o averziji investitora prema riziku. U provedenoj analizi Bitcoin se nalazi na efikasnoj granici, a svi instrumenti koji se nalaze na efikasnoj granici su prema modernoj teoriji portfelja učinkoviti, stoga se može reći kako su takva ulaganja vrlo zahtjevna. Isto tako u empirijskoj analizi usporedio se portfelj navedenih zemalja za vrijeme krize i nakon krize. Grafičkim prikazom utvrdilo se kako se situacija u navedenim zemljama nakon krize počela ubrzano popravljati, dok su za vrijeme krize prinosi bili negativni što znači da nije bilo prostora za ulaganje na takvim tržištima.Cryptocurrencies are a burning topic in modern times of investment strategies. Since the cryptocurrency market is classified as emerging market, this paper compiles a portfolio of emerging markets from the indexes of four EU countries and one cryptocurrency. The aim was to investigate how the incorporation of Bitcoin cryptocurrency into the portfolio affects the performance of the portfolios of these countries, and by drawing an effective boundary to identify where Bitcoin is relative to other indekses in the portfolio. Initially, the tory assumptions of the method by which empirical analysis was later made were outlined. It also explained the meaning of emerging market terms and presented formulas for calculating EU countries' indexes. The countries whose indexes were used in the analysis are: Croatia, Hungary, Romania and Poland. The method used to draw an effective boundary is Markowitz's modern portfolio theory. Applying this method at the efficient frontier created a portfolio of minimum variance for the portfolio with and without cryptocurrency. Although Markowitz's theory has some drawbacks, the empirical analysis concludes that Bitcoin increases portfolio efficiency in emerging markets of selected EU countries, where the expected risks or standard deviations of a portfolio that includes cryptocurrency are even smaller with higher returns than portfolio that does not consist of cryptocurrency. Notwithstanding the increased efficiency of the entire portfolio, the weightings of the minimum variance portfolio remained unchanged. Given that cryptocurrency prices are characterized by high volatility, investing in such a portfolio will depend on investors' aversion to risk. In the analysis conducted, Bitcoin is on the efficient frontier, and all instruments on the efficient frontier are, according to modern portfolio theory, efficient, so it can be said that such investments are very challenging. Also, the empirical analysis compared the portfolio of these countries during the crisis and after the crisis. The graph shows that the situation in these countries began to improve rapidly after the crisis, while during the crisis the returns were negative, which means that there was no room for investment in such markets