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Anthony, Nigel (2024) Influence of Cryptocurrencies on Portfolio Optimization: An Analysis of Diversification Opportunities. Masters thesis, Dublin, National College of Ireland.
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Abstract
The twenty-first century has been marked by extraordinary technological advancements that have had a profound impact on a variety of sectors, including financial services. Blockchain technology and cryptocurrencies have emerged as significant developments among these innovations. Cryptocurrencies, which were initially perceived as speculative assets, have gained the attention of both institutional and individual investors who are seeking to increase their returns in spite of their inherent volatility. This research examines the potential diversification advantages cryptocurrency, specifically Bitcoin (BTC) and Ethereum (ETH), provide when incorporated into conventional investment portfolios. This study conducts a thorough examination of the influence of BTC and ETH on portfolio performance, with a particular emphasis on the Sharpe ratios, returns, and risk of portfolios that incorporate these digital assets in addition to traditional assets. The objective of the research is to ascertain whether Ethereum offers superior diversification advantages in comparison to Bitcoin. This study utilises empirical data analysis and sophisticated portfolio optimisation techniques to provide useful insights, building on previous research that has emphasised the benefits of integrating cryptocurrencies into conventional portfolios.
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