Getting Rich on Crypto

Description

Dan Nickerson, a private wealth manager at a big firm, had just begun taking on his first set of clients when one of them asked his advice on whether he should add bitcoin to his investment portfolio. Nickerson noticed that the price of one bitcoin had risen from $276.30 in March 2015, to $20,089.00 in December 2017, and closed on March 2, 2018, at $10,977.40. This represented an almost unprecedented amount of volatility when compared to other asset classes, but also an incredibly impressive return over a short period of time. News about bitcoin was contradictory, with some analysts suggesting that bitcoin could replace gold as a means to hedge the risk of other asset classes and balance a diversified portfolio while still providing a positive return. Nickerson wondered how to advise his client. Did bitcoin represent a compelling investment opportunity? Furthermore, could cryptocurrencies as an asset class play a risk-reducing role in a balanced investment portfolio? How should he consider other emerging cryptocurrencies, like Ethereum and Litecoin, and could he even begin to forecast the future returns of cryptocurrencies? This case is suitable in courses covering decision analysis, finance, portfolio management, and investments.

Keywords

asset correlation bitcoin cryptocurrency gold portfolio diversification Portfolio management Portfolio returns portfolio risk analysis portfolio theory private wealth management