Previous studies have compared Bitcoin to financial assets (bonds and stocks) or commodities (gold, crude oil, and silver) or fiat monies (USD, JPE, etc.) This might cause a problem because Bitcoin is different from those traditional assets due to it being extremely risky, illegal in many places, and not presenting any real cash flows like stocks or bonds. Our paper focuses on comparing Bitcoin with traditional assets of similar risk-return profile such as public small capitalization stocks, OTC stocks, IPO stocks, and junk bonds. We find that Bitcoin experienced the highest return and was not correlated to those assets. That means Bitcoin can offer substantial diversification benefits to investors. We further examine factors that determined Bitcoin’s returns and find that among the five common factors that have been shown as drivers of stock returns, only three factors played a role in Bitcoin’s returns. They were the market factor (MKTRF), the profitability factor (RMW) and the investment factor (CMA).
Gregg, William VI and Nguyen, Thanh
"Bitcoin: A New Form of Investment or Another Traditional Asset?,"
University of South Carolina Upstate Student Research Journal: Vol. 13, Article 6.
Available at: https://scholarcommons.sc.edu/uscusrj/vol13/iss1/6