Without a doubt, cryptocurrencies have emerged as a notable addition to the financial landscape, becoming an essential component in many people's lives. As proof, we can observe a rise in the quantity of cryptocurrency exchange-traded funds (ETFs), particularly in the European market
. Consequently, when considering the construction of an optimized portfolio, it is necessary to evaluate the potential inclusion of this new asset class. However, questions arise: Could the addition of cryptocurrencies enhance the overall performance of the portfolio? Or might their known volatility undermine the benefits typically gained through diversification?
To address these questions, our research focuses on a selection of eight leading cryptocurrencies, ranked by market capitalisation. This approach excludes both newly launched coins and stablecoins, concentrating on a more stable and proven segment of the cryptocurrency market.
The cryptocurrencies selected for our study include 'ADA', 'BNB', 'BTC', 'DOGE', 'ETH', 'LTC', 'TRX', and 'XRP'
. These choices reflect a range of market capitalisations and are representative of diverse approaches within the cryptocurrency space. In the accompanying graph, it becomes evident that 'BTC', 'ETH', and 'XRP' stand out as having substantially higher market capitalisations compared to the other selected cryptocurrencies.
This distinction in market capitalisation highlights the varying degrees of acceptance, investment, and utilisation across these cryptocurrencies. 'BTC', as the pioneering cryptocurrency, along with 'ETH' and 'XRP', have established themselves as dominant players in the market. This contrasts sharply with the remaining cryptocurrencies in our selection, which, while significant, have not reached the same level of market penetration.