Incorporating bitcoin into the Canadian investment landscape
University of New Brunswick
Within the past few years, bitcoin has attracted a lot of attention as an emerging investment asset and alternative to traditional investments. As a relatively new financial asset, bitcoin offers investors diversification opportunities and a potential hedging strategy due to its low correlation with other investments. Using daily price data between 2017 and 2022 for bitcoin and five other assets assumed to represent the Canadian investment universe, this report evaluates the role that bitcoin plays in improving portfolio efficiency under a Modern Portfolio Theory (MPT) framework. Applying the Markowitz portfolio selection criteria, this report also assesses bitcoin’s impact on the efficient frontier and the composition of the most efficient and least risky portfolios accessible to Canadian investors. Finally, this study describes the risk-return relations that exist between bitcoin and the other five assets using mean variance analysis. Findings from this report will have implications for regulators and investment professionals, especially those relating to emerging technologies.