Bitcoin: The New Digital Gold?

Sammanfattning: Bitcoin has become a mainstream in the financial world. It has several similarities with Gold as low correlation with stocks, inflation hedge, government decentralization and the no currency attachment. Therefore, the name of the new “Digital Gold”. This study compares Gold and Bitcoin, offered as an alternatives financial assets. Thus, there are two research questions. First, if Bitcoin helps to reduce risk within a well-diversified equity portfolio, represented by the S&P 500. Second, if Bitcoin improves risk-return relation. Both questions are compared with Gold. Hence, two the financial approaches are the Minimum Portfolio Variance and the Tangency Portfolio. In order to have a solid base, this study evaluates in-sample and out-sample portfolios of rolling windows for 3, 6 and 12 months horizons. The results of the first question suggest that even the correlation coefficients are extremely low, they are not enough to mitigate risk because of Bitcoin high volatility. The in-sample and out-sample analysis demonstrate Bitcoin does not help to reduce risk in an equity portfolio as Gold does. For the second question, Bitcoin offers a better risk premium than Gold for in-sample and out-sample and considering both frameworks: long and long-short. However, Gold still gives a high premium per unit of risk. Therefore, Gold is also a good investment asset. Hence, even the similarities between both assets, Bitcoin cannot be considered as the new “Digital Gold” because it is still in the infancy stage to be treated as Gold.