Crypto exposure has a good impact on different investment portfolio models

A recent study shows that there has been a good effect on the performance of a diversified crypto investment portfolio when funds are allocated for the crypto position.

Cryptology Asset Group, the most traded holding company for the companies working with blockchain technology and cryptocurrencies, has recently published a study report on the subject. According to the research, an investment portfolio backed by proper crypto investments overpowers several asset allocation strategies.

The giant crypto holding company’s report named “Cryptocurrencies and the Sharpe Ratio of Traditional Investment Models” studied the impact of different portfolio allocation strategies on the risk-return profile by adding cryptocurrencies. 

“The study finds that adding cryptocurrencies to any portfolio model covered had a positive effect on the returns and the risk-reward factor’s performance. This measurement holds despite a massive reversal in the crypto markets in May 2021. Additionally, the adding more cryptocurrencies resulted in even bigger returns.” The study states.

How crypto effect on diversified investment portfolio

Despite the high volatility of the crypto assets, including the May crash after miners sold off their BTC, its positive impact and ability to improve the gains of diversified investment portfolio overpowers every other model.

The researchers measured the changes in the Sharpe ratio on risk-return. Sharpe ratio is the additional returns a person gets while holding a volatile (considered risky) asset, cryptocurrencies. The addition of crypto on different asset portfolio models helped the researchers to find the massive positive impact crypto has on these models.

The study recorded the changes in the Sharpe ratio while exposing traditional portfolio models to crypto-assets. It plotted the values against a reference index with the situation where there was no crypto addition.

To be fully assured and not neglect any case, the study also checked the impacts of adding 1%, 3%, and 5% cryptocurrencies in each portfolio model.

Institutions are shifting to cryptocurrencies and DeFi protocols due to their solid use cases. Recently, Bank of America published a report revealing that more than 20 big companies have significant investments in cryptocurrencies.