Cryptocurrencies as an Alternative Investment Asset Class

Abstract

This paper examines the potential for cryptocurrencies to be considered an alternative investment asset class within the Pakistani investment context. A comprehensive literature review outlines key considerations around cryptocurrencies as investments, including drivers of adoption, risks and returns profile. The study sets out to assess investor perceptions of cryptocurrencies as well as evaluate the risk-return payoff of a hypothetical cryptocurrency portfolio versus traditional assets. Quantitative analysis on simulated data for a Bitcoin, Ethereum and stable coin portfolio finds higher returns but also higher volatility compared to stocks and bonds over a five-year period. The paper concludes that cryptocurrencies exhibit characteristics of an alternative investment worthy of consideration by Pakistani investors seeking diversified portfolios, however also cautions around high price volatility. Further research around regulation and governance of cryptocurrency markets is advised.

Keywords: Cryptocurrency, Alternative Investments, Portfolio Diversification, Volatility, Investor Perceptions