What Value-at-Risk and Expected Shortfall Metrics Tell a Risk Averse Investor in Cryptocurrencies

  • I. KopytinEmail author
  • A. Maslennikov
  • S. Zhukov
Conference paper
Part of the Smart Innovation, Systems and Technologies book series (SIST, volume 139)


The article aims to quantify relative attractiveness of investing into cryptocurrencies for a risk averse investor with standard measures of risk. As market capitalization of cryptocurrencies reached a record $823 billion in January 2018 they could be considered to represent a new investable asset class. Introduction of Bitcoin futures contracts on the Chicago Board Options Exchange (Cboe) and the Chicago Mercantile Exchange (CME) in December 2017 gave large institutional investors such as hedge funds and mutual funds opportunities to enter the cryptocurrencies market in order to diversify investment portfolios and/or to gain exposure to potentially undervalued assets. CFTC’s qualification of cryptocurrencies as commodities makes analysis of market risk associated with them even more necessary. Having compared non-parametric historical one-day Value-at-Risk and Expected Shortfall metrics for 283 cryptocurrencies with that of traditional asset classes (equities, bonds, currencies and commodity futures) we show that the least volatile cryptocurrency Bitcoin is almost twice as risky as the most volatile traditional asset, i.e. natural gas. Risk averse investors can lower market risk of Ethereum and Ripple by investing in portfolio of most valuable digital currencies.

By tightness of returns correlations 8 most valuable cryptocurrencies form three clusters. Combining Bitcoin, which with Litecoin comprises a separate cluster, with Dash and Stellar from other clusters could reduce the capitalization-weighted portfolio’s VaR below Bitcoin’s VaR level. However, none of the possible combinations of Bitcoin with cryptocurrencies from two other clusters could reduce ES metric below that of Bitcoin itself. Stellar and Monero have the most prominent footprint in the crypto-currencies space after Bitcoin. Bitcoin – Monero – Stellar capitalization-weighted portfolio is less risky than Bitcoin in terms of VaR.


Bitcoin Cryptocurrencies portfolio Value-at-Risk Expected shortfall 


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© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Primakov National Research Institute of World Economy and International RelationsMoscowRussian Federation

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