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Crypto assets: the role of ICO tokens within a well-diversified portfolio

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Abstract

This paper re-examines the discussion on blockchain technology, crypto assets and ICOs providing also evidence that in crypto markets there are currently two classes of assets, namely standalone cryptocurrencies (or 'coins') and tokens which result from an ICO and are intrisically linked to the performance of the issuing company or venture. While the former have been arguments of various empirical studies regarding their price dynamics and their effect on the variance of a well-diversified portfolio, no such study has been done to analyze listed tokens, which in our sample are over 700 and with a backing of about §17.3Bn from their respective ICOs. Therefore, investors interested in optimizing their portfolios should first assess the diversifier, hedge or safe haven role of tokens vis-à-vis traditional assets, on top of 'coins' in order to sensibly use this new asset class. After constructing various indices to represent both the token asset class as a whole and its sub-classes, we model dynamic conditional correlations among all the assets in our sample to obtain time-varying correlations for each token-asset pair. We find that tokens are effective diversifiers but not a hedge or a safe haven asset. We evidence that tokens retain important systematic differences with the two other asset classes to which they are most generally compared to, namely 'coins' and equities

Suggested Citation

  • Saman Adhami & Dominique Guégan, 2019. "Crypto assets: the role of ICO tokens within a well-diversified portfolio," Documents de travail du Centre d'Economie de la Sorbonne 19020, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:19020
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    References listed on IDEAS

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    8. Giancarlo Giudici & Saman Adhami, 2019. "The impact of governance signals on ICO fundraising success," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(2), pages 283-312, June.
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    Cited by:

    1. José Campino & Ana Brochado & Álvaro Rosa, 2021. "Initial Coin Offerings (ICOs): the importance of human capital," Journal of Business Economics, Springer, vol. 91(8), pages 1225-1262, October.

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    More about this item

    Keywords

    Cryptocurrency; DCC-MGARCH; Hedge; Initial Coin Offering; Safe Haven;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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