Crypto-currencies have developed a vibrant market since bitcoin, the rst
crypto-currency, was created in 2009. We look at the properties of cryptocurrencies
as nancial assets in a broad cross-section. We discuss approaches
of altcoins to generate value and their trading and information platforms.
Then we investigate crypto-currencies as alternative investment assets, studying
their returns and the co-movements of altcoin prices with bitcoin and
against each other. We evaluate their addition to investors' portfolios and
document they are indeed able to enhance the diversication of portfolios due
to their little co-movements with established assets, as well as with each other.
Furthermore, we evaluate pure portfolios of crypto-currencies: an equallyweighted
one, a value-weighted one, and one based on the CRypto-currency
IndeX (CRIX). The CRIX portfolio displays lower risk than any individual of
the liquid crypto-currencies. We also document the changing characteristics
of the crypto-currency market. Deepening liquidity is accompanied by a rise
in market value, and a growing number of altcoins is contributing larger
amounts to aggregate crypto-currency market capitalization.
bitcoin, crypto-currency, altcoins, CRIX, alternative investments, portfolio selection