A study on bitcoin as a diversifier in a global market portfolio

Since there are limited literature in Bitcoin, this research is primarily explorative and employs a Modern Portfolio Theory to estimate parameters and draw conclusions from historical data. This study aims to focus on the effects of bitcoin in an already diversified portfolio through a (1) long-only and (2) semi-constrained portfolio. In addition, this research would like to determine whether there is (3) a significant difference in Bitcoin returns versus a portfolio benchmark using weekly data values of the global market portfolio (base portfolio) from August 20, 2010 to December 31, 2019. To conclude, after running a Monte Carlo Simulation given the constraint of no more than 25% asset weight allocation by maximizing the Sharpe Ratio, there has been no allocation for Bitcoin in the optimal portfolio. The addition of Bitcoin in an optimal global market portfolio will not affect the portfolio’s risk and return ratio whether in a Long-Only portfolio or a Semi-Constrained Portfolio. Likewise, there is a significant difference in the returns and volatility of Bitcoin compared to MSCI All Country World Index