Crypto assets: the role of ICO tokens within a well-diversified portfolio

Saman Adhami () and Dominique Guégan ()
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Saman Adhami: Vienna Graduate School of Finance
Dominique Guégan: Université Paris1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne, - Ca' Foscari University of Venezia, University of Economics Ho Chi Minh City, Vietnam, https://cv.archives-ouvertes.fr/dominique-guegan

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: This paper re-examines the discussion on blockchain technology, crypto assets and ICOs providing also evidence that in crypto markets there are currently two classes of assets, namely standalone cryptocurrencies (or 'coins') and tokens which result from an ICO and are intrisically linked to the performance of the issuing company or venture. While the former have been arguments of various empirical studies regarding their price dynamics and their effect on the variance of a well-diversified portfolio, no such study has been done to analyze listed tokens, which in our sample are over 700 and with a backing of about §17.3Bn from their respective ICOs. Therefore, investors interested in optimizing their portfolios should first assess the diversifier, hedge or safe haven role of tokens vis-à-vis traditional assets, on top of 'coins' in order to sensibly use this new asset class. After constructing various indices to represent both the token asset class as a whole and its sub-classes, we model dynamic conditional correlations among all the assets in our sample to obtain time-varying correlations for each token-asset pair. We find that tokens are effective diversifiers but not a hedge or a safe haven asset. We evidence that tokens retain important systematic differences with the two other asset classes to which they are most generally compared to, namely 'coins' and equities

Keywords: Cryptocurrency; DCC-MGARCH; Hedge; Initial Coin Offering; Safe Haven (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2019-09
New Economics Papers: this item is included in nep-ore, nep-pay, nep-rmg and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:19020

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