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Bitcoin: The biggest financial innovation of fourth industrial revolution and a portfolio's efficiency booster

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  • Li, Jing-Ping
  • Naqvi, Bushra
  • Rizvi, Syed Kumail Abbas
  • Chang, Hsu-Ling

Abstract

Fourth industrial revolution has brought with it a consistently growing use of technology in all fields of life, including finance and investment. Amidst all this, Bitcoin also emerged on the surface of the financial markets in 2008, as one of the biggest innovations of our century. However, since then, it has largely been scrutinized for the benefits and risks that it puts forth in terms of the economic growth, financial system's stability and the welfare of overall society. In this study, we evaluate how the financial industry can use Bitcoin for improving the efficiency and wealth of the society, by focusing on portfolio optimization. Our results show that Bitcoin has an enormous tendency to improve an investor's risk-return profile. This efficiency is clearly visible in the upward shifts of the efficient frontiers, once Bitcoin is added in the universe of investable assets. Bitcoin's efficiency is valid for when the short selling was, and, was not restricted. It is important to note that our findings are based on the data that spans over a timeframe of a decade, and provides a medium to long term perspective on Bitcoin, which was not the case with the earlier studies.

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  • Li, Jing-Ping & Naqvi, Bushra & Rizvi, Syed Kumail Abbas & Chang, Hsu-Ling, 2021. "Bitcoin: The biggest financial innovation of fourth industrial revolution and a portfolio's efficiency booster," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    • Handle: RePEc:eee:tefoso:v:162:y:2021:i:c:s0040162520312099
    DOI: 10.1016/j.techfore.2020.120383
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    15. Rizvi, Syed Kumail Abbas & Naqvi, Bushra & Mirza, Nawazish & Umar, Muhammad, 2022. "Safe haven properties of green, Islamic, and crypto assets and investor's proclivity towards treasury and gold," Energy Economics, Elsevier, vol. 115(C).
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    17. Umar, Muhammad & Su, Chi-Wei & Rizvi, Syed Kumail Abbas & Shao, Xue-Feng, 2021. "Bitcoin: A safe haven asset and a winner amid political and economic uncertainties in the US?," Technological Forecasting and Social Change, Elsevier, vol. 167(C).

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    More about this item

    Keywords

    Innovation; Bitcoin; Efficient frontier; Mean-variance; Sharpe ratio;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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