The economic value of Bitcoin: A volatility timing perspective with portfolio rebalancing

Jui-Cheng Hung, Hung-Chun Liu and J. Jimmy Yang

The North American Journal of Economics and Finance, 2024, vol. 74, issue C

Abstract: We investigate the economic value of adding Bitcoin, instead of Gold, to a traditional portfolio from the perspective of a volatility timing framework. Using futures data, we find that Bitcoin adds more value than Gold does to the portfolio during periods of dovish monetary policy. However, during periods of rapid rate hikes, Bitcoin destroys value while Gold offers safe haven and diversification benefits. Rebalancing strategies matter when considering adding alternative assets to a stock–bond portfolio in the presence of transaction costs. This study is timely given the macroeconomic environment of rate hikes and the downturn of cryptocurrencies.

Keywords: Bitcoin; Volatility timing; Portfolio rebalancing; RGARCH; Futures (search for similar items in EconPapers)
JEL-codes: C14 C22 G14 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001852

DOI: 10.1016/j.najef.2024.102260

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