"Portfolio optimization with crypto currencies and impact on return: Case of Ethereum"

Abstract

Numerous financial investment instruments have been developed as a result of expanding financial markets. Investors are therefore presented with a wide variety of financial investment instruments and attempt to select portfolios that have a low level of risk for their investments while also providing a high level of return. In the literature, the portfolio that will generate the greatest degree of income for the investor can also be referred to as the optimum portfolio. By the definition of the optimum portfolio the expected rate of return of the portfolio should be maximized, and its risk should be kept to a minimum. According to traditional diversification strategies, having a mix of different well-known traditional finance asset types, such as fiat money, rare metals, bonds, and stocks, can maximize portfolio diversification. However, new data suggests that a lack of exposure to Bitcoin in general, crypto currency may restrict an investor's ability to diversify their portfolio. In this work, an optimal portfolio will be built utilizing the closing prices of the different indices and Ethereum between 2014 and 2022 using the most fundamental method, Markowitz portfolio theory. Investors and their strategies are covered in the first section of the thesis. Ethereum and blockchain technology are examined later. Traditional and Markowitz portfolio theory are compared in the literature review. The data and conclusion section discusses Ethereum's improved portfolio returns and risk performance according to final findings of the analysis.