Practical Applications of Cryptocurrencies as an Asset Class? An Empirical Assessment

Abstract

Practical Applications In Cryptocurrencies as an Asset Class?An Empirical Assessment from the Fall 2020 issue of TheJournal of Alternative Investments, author Daniele Bianchi of Queen Mary University of London explores how cryptocurrencies (for example, Bitcoin) relate to traditional asset classes such as stocks and bonds. Bianchi posits that cryptocurrencies are global investments because they are not tied to any country. He therefore matches the performance and volume of cryptocurrency against that of global stock, bond, and other indexes. He also explores the driving factors behind cryptocurrency market activity. Bianchi finds no significant correlation between the performance of cryptocurrencies and that of traditional assets, except for a slight correlation with commodities, especially precious metals. He also finds no correlation between the volatility of cryptocurrencies and traditional assets. Finally, he finds that cryptocurrency trading volumes are not affected by macroeconomic events; their main driver is past performance—meaning investors trade cryptocurrency based on gut feelings rather than analysis. Like gold, cryptocurrencies can act as a hedge against stock market losses—but they do not have gold’s perceived intrinsic value, since their value is based only on the platforms and projects with which they are associated.