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Diversification Among Cryptoassets: Bitcoin Maximalism, Active Portfolio Management, and Survival Bias

Author

Listed:
  • Weizhi Sun

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)

  • Ladislav Kristoufek

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University & The Czech Academy of Sciences, Institute of Information Theory and Automation, Prague, Czech Republic)

Abstract

Cryptoassets, particularly Bitcoin, have attracted the attention of institutional investors during the latest price rallies of 2020 and 2021. The need for cryptoassets apart from Bitcoin in their portfolios is mostly unexplored in the current literature, and the general perception of diversification benefits within cryptomarkets mostly builds on popular beliefs. The current study is a deep dive into active and passive investment strategies focusing on specifics of cryptoassets, the most important of which is the survival bias in the portfolio dataset construction and its implications. We show that survival bias does in fact drive the results at their very core and that the differences between using the backward-looking subset of assets and actual assets available at the time of portfolio construction are substantial and lead to completely different implications and investment suggestions. It turns out that active portfolio management does not pay off in most instances compared to simply holding Bitcoin.

Suggested Citation

  • Weizhi Sun & Ladislav Kristoufek, 2021. "Diversification Among Cryptoassets: Bitcoin Maximalism, Active Portfolio Management, and Survival Bias," Working Papers IES 2021/31, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2021.
    • Handle: RePEc:fau:wpaper:wp2021_31
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6476
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    More about this item

    Keywords

    cryptocurrencies; cryptoassets; Bitcoin; diversification; portfolio management; survival bias;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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