Title: Diversification among cryptoassets: Bitcoin maximalism, active portfolio management, and survival bias
Authors: Ladislav Kristoufek - Institute of Information Theory and Automation, Czech Academy of Sciences (Czech Republic) [presenting]
Abstract: Cryptoassets and mostly Bitcoin have attracted the attention of institutional investors in the latest price rallies of 2020 and 2021. The need for other cryptoassets apart from Bitcoin in their portfolios is mostly unexplored in the current literature and the general perception of diversification benefits within crypto-markets mostly builds on popular beliefs. The current study delivers a deep dive into active and passive investment strategies, focusing on specifics of cryptoassets, most importantly the survival bias in the portfolio dataset construction and its implications. We show that the survival bias is in fact driving the results at their very core and the differences between using the backwards-looking subset of assets and the actual assets available at the time of portfolio construction are substantial and lead to completely different implications and investment suggestions. It turns out that active portfolio management does not pay off in most instances compared to simply holding Bitcoin.