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Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio

Using August 2010 to February 2018 as the sample period, this study investigates, from the perspective of a South African investor, the portfolio diversification and optimisation abilities and asset allocation effects of including Bitcoin in a portfolio, and compares this with physical gold. In part...

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Main Author: Robertson, Brett Hope
Other Authors: Toerien, Francois
Format: Thesis
Language:English
Published: Department of Finance and Tax 2019
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access_status_str Open Access
author Robertson, Brett Hope
author2 Toerien, Francois
author_browse Robertson, Brett Hope
Toerien, Francois
author_facet Toerien, Francois
Robertson, Brett Hope
author_sort Robertson, Brett Hope
collection Thesis
description Using August 2010 to February 2018 as the sample period, this study investigates, from the perspective of a South African investor, the portfolio diversification and optimisation abilities and asset allocation effects of including Bitcoin in a portfolio, and compares this with physical gold. In particular the study investigates: ( i) key statistics, returns and correlations between Bitcoin’s returns and those of the components of a standard South African base portfolio and gold bullion; (ii) the risk-return efficiency enhancements and asset allocation effects (weightings) from the inclusion of Bitcoin and gold bullion under different portfolio frameworks1 ; (iii) the cumulative returns of the optimal portfolios over the investment period; and (iv) the efficient frontier shifts from the inclusion of Bitcoin and gold bullion within the context of different portfolio frameworks. Because of Bitcoin’s non-normal return distribution and extremely high returns, a quantitative mean-semivariance based portfolio optimisation approach is followed, using index proxies2 for the traditional six portfolio assets included (SA equity, SA bonds SA listed property, SA cash/money market, international equity and international cash). The study finds that, for a South African portfolio, Bitcoin (i) enhances the risk-return efficiency (measured i.t.o. the Sortino ratio) and shifts the efficient frontier up and outwards under every portfolio framework, and (ii) that it is far superior to physical gold in this regard under all portfolio frameworks, including within the asset weighting constraints imposed by South African legislation (Regulation 28 of the Pension Fund Act). In addition, at weightings of 5% or lower, Bitcoin not only enhances the portfolio’s risk-return profile, but also further reduces the outright risk of the optimal portfolio. In addition, it is found that due to its negative correlation with SA bonds and SA cash, Bitcoin’s inclusion in a portfolio increases the weighting of these assets, and reduces the allocation to SA and global equity. The above results indicate that South African investors with a higher risk tolerance should consider allocating a small part of their portfolio to Bitcoin, and that South African regulatory authorities should make provision for cryptocurrencies when drafting investment legislation (and, in particular, should consider clarifying its status within Regulation 28).
format Thesis
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institution University of Cape Town (South Africa)
language eng
last_indexed 2026-06-10T12:32:34.479Z
license_str Not specified — see source repository
provenance_str_mv Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository
publishDate 2019
publishDateRange 2019
publishDateSort 2019
publisher Department of Finance and Tax
publisherStr Department of Finance and Tax
record_format dspace
source_str UCTD — University of Cape Town Open Access Repository
spelling oai:open.uct.ac.za:11427/30113 Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio Robertson, Brett Hope Toerien, Francois Using August 2010 to February 2018 as the sample period, this study investigates, from the perspective of a South African investor, the portfolio diversification and optimisation abilities and asset allocation effects of including Bitcoin in a portfolio, and compares this with physical gold. In particular the study investigates: ( i) key statistics, returns and correlations between Bitcoin’s returns and those of the components of a standard South African base portfolio and gold bullion; (ii) the risk-return efficiency enhancements and asset allocation effects (weightings) from the inclusion of Bitcoin and gold bullion under different portfolio frameworks1 ; (iii) the cumulative returns of the optimal portfolios over the investment period; and (iv) the efficient frontier shifts from the inclusion of Bitcoin and gold bullion within the context of different portfolio frameworks. Because of Bitcoin’s non-normal return distribution and extremely high returns, a quantitative mean-semivariance based portfolio optimisation approach is followed, using index proxies2 for the traditional six portfolio assets included (SA equity, SA bonds SA listed property, SA cash/money market, international equity and international cash). The study finds that, for a South African portfolio, Bitcoin (i) enhances the risk-return efficiency (measured i.t.o. the Sortino ratio) and shifts the efficient frontier up and outwards under every portfolio framework, and (ii) that it is far superior to physical gold in this regard under all portfolio frameworks, including within the asset weighting constraints imposed by South African legislation (Regulation 28 of the Pension Fund Act). In addition, at weightings of 5% or lower, Bitcoin not only enhances the portfolio’s risk-return profile, but also further reduces the outright risk of the optimal portfolio. In addition, it is found that due to its negative correlation with SA bonds and SA cash, Bitcoin’s inclusion in a portfolio increases the weighting of these assets, and reduces the allocation to SA and global equity. The above results indicate that South African investors with a higher risk tolerance should consider allocating a small part of their portfolio to Bitcoin, and that South African regulatory authorities should make provision for cryptocurrencies when drafting investment legislation (and, in particular, should consider clarifying its status within Regulation 28). 2019-05-15T10:08:53Z 2019-05-15T10:08:53Z 2018 2019-05-13T13:36:26Z Master Thesis Masters MCom http://hdl.handle.net/11427/30113 eng application/pdf Department of Finance and Tax Faculty of Commerce
spellingShingle Robertson, Brett Hope
Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio
thesis_degree_str Master's
title Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio
title_full Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio
title_fullStr Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio
title_full_unstemmed Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio
title_short Bitcoin: The New Virtual Gold? An investigation into the diversification properties of Bitcoin within a South African portfolio
title_sort bitcoin the new virtual gold an investigation into the diversification properties of bitcoin within a south african portfolio
url http://hdl.handle.net/11427/30113
work_keys_str_mv AT robertsonbretthope bitcointhenewvirtualgoldaninvestigationintothediversificationpropertiesofbitcoinwithinasouthafricanportfolio

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