There is a new paper out which is quite interesting and which basically says that cryptocurrencies are indeed a new asset class, potentially useful as a diversifier of conventional asset classes:
Corbet, Shaen and Meegan, Andrew and Larkin, Charles James and Lucey, Brian M. and Yarovaya, Larisa, Exploring the Dynamic Relationships between Cryptocurrencies and Other Financial Assets (November 13, 2017). Available at SSRN: https://ssrn.com/abstract=3070288
We analyse, in the time and frequency domains, the relationships between three popular cryptocurrencies and a variety of other financial assets. We find evidence of the relative isolation of these assets from the financial and economic assets. Our results show that cryptocurrencies may offer diversification benefits for investors with short investment horizons. Time variation in the linkages reflects external economic and financial shocks.
Another new paper states that "investors should view cryptocurrencies as risky, competing and somewhat illiquid bets on potential improvements over conventional ways of doing business worldwide, not stores of value." (Source: https://www.cxoadvisory.com/30892/currency-trading/cryptocurrency-primer/):
Kim, Seoyoung and Sarin, Atulya and Virdi, Daljeet, Crypto-Assets Unencrypted (January 31, 2018). Journal of Investment Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3117859
With the recent surge in crypto-activity, a natural question arises as to what exactly a “cryptocurrency” is and how to value and assess these digital assets. In this paper, we provide an overview of the history and technology underlying cryptocurrencies. We also present information on the volume, size, and volatility of this emerging asset class, which we compare to major fiat currencies and commodities. Finally, we provide a framework for valuing crypto-assets, discuss the still-evolving regulatory environment for this asset class, and discuss the mechanics of investing in cryptocurrencies.
Another paper finds that "the body of crypto-asset research, based on arguably immature market data, suggests considerable obstacles to widespread investment and adoption." (source: https://www.cxoadvisory.com/31066/currency-trading/crypto-asset-research-survey/):
Corbet, Shaen and Lucey, Brian M. and Urquhart, Andrew and Yarovaya, Larisa, Cryptocurrencies as a Financial Asset: A Systematic Analysis (March 18, 2018). Available at SSRN: https://ssrn.com/abstract=3143122 or http://dx.doi.org/10.2139/ssrn.3143122
This paper provides a systematic review of the empirical literature on the major topics that have been associated with the market for cryptocurrencies since their development as a financial asset in 2009. Despite astonishing price appreciation in recent years, cryptocurrencies have been subjected to accusations of pricing bubbles central to the trilemma that exists between regulatory oversight, the potential for illicit use through it's anonymity within a young underdeveloped exchange system, and infrastructural breaches influenced by the growth of cyber criminality. Each influence the perception of the role of cryptocurrencies as a trustworthy credible investment asset class and legitimate of value.
The next paper "indicates that investors may benefit from adding crypto-assets to their portfolios, with even a fixed 1% allocation offering material Sharpe ratio improvements." (Source: https://www.cxoadvisory.com/31159/currency-trading/diversify-with-crypto-assets):
Krueckeberg, Sinan and Scholz, Peter, Cryptocurrencies as an Asset Class? (April 14, 2018). Available at SSRN: https://ssrn.com/abstract=3162800 or http://dx.doi.org/10.2139/ssrn.3162800
Cryptocurrencies show characteristics of a distinct asset class based on strong internal correlation, an absence of correlation with any traditional asset class as well as strong market liquidity, while market stability has room for improvement. We find that for investment purposes cryptocurrencies can be distinguished into cryptographic coins and tokens. Adding a 1% allocation of cryptocurrencies to traditional portfolio structures leads to significant and persistent risk weighted outperformance. These results support the careful introduction of cryptocurrencies into the asset management mainstream.
The next paper "indicates that crypto-assets have little or no relationships to traditional asset classes, exhibit some predictability based on short-term momentum and investor attention and are more important (positively or negatively) for some industries than others." (Source: https://www.cxoadvisory.com/31471/currency-trading/crypto-asset-risks-and-returns):
Liu, Yukun and Tsyvinski, Aleh, Risks and Returns of Cryptocurrency (August 6, 2018). Available at SSRN: https://ssrn.com/abstract=3226952 or http://dx.doi.org/10.2139/ssrn.3226952
We establish that the risk-return tradeoff of cryptocurrencies (Bitcoin, Ripple, and Ethereum) is distinct from those of stocks, currencies, and precious metals. Cryptocurrencies have no exposure to most common stock market and macroeconomic factors or to the returns of currencies and commodities. In contrast, we show that the cryptocurrency returns can be predicted by factors which are specific to cryptocurrency markets – there is a strong time-series momentum effect and proxies for investor attention strongly forecast cryptocurrency returns. Finally, we create an index of exposures to cryptocurrencies of 354 industries in the US and 137 industries in China.