Exploring the Role of Digital Assets in the Diversification of Institutional Investment Portfolios
Posted: Mar 08, 2023
Abstract
This research investigates the diversification benefits of digital assets within institutional investment portfolios through a novel methodological framework that combines traditional portfolio theory with blockchain-native metrics. Unlike previous studies that primarily focus on cryptocurrency price movements, our approach incorporates network activity, decentralization metrics, and protocol-level fundamentals to create a more comprehensive assessment of digital asset integration. We develop a multi-dimensional classification system for digital assets that extends beyond market capitalization to include technological maturity, governance structures, and ecosystem utility. Our methodology employs a modified mean-variance optimization framework enhanced with tail risk measures and liquidity constraints specific to digital markets. The research analyzes data from 2018-2023 across traditional asset classes (equities, bonds, real estate, commodities) and multiple digital asset categories including cryptocurrencies, tokenized real-world assets, and decentralized finance protocols. Results demonstrate that strategic allocation to digital assets ranging from 3-7
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