Bitcoin and Portfolio Diversification: A Portfolio Optimization Approach

This study investigates the performance of Bitcoin as a diversifier under different constraining portfolio optimization frameworks. The employs frameworks that seek to maximize risk-adjusted returns (Sharpe ratio) by optimizing allocations each asset class (asset allocation). attributes are evaluated comparing portfolios both with and without ranging from equal-weighted, risk-parity, semi-constrained unconstrained. suggests Bitcoin, due its exotic nature, unwavering appeal, unknown set drivers, could act in normal market conditions, it might also have some borderline hedge safe haven properties. results further suggest while may be potential for risk-seeking investor, risk-averse investor must exercise caution limiting their exposure portfolios, unnecessary increase probability losses extreme conditions.