CRYPTOCURRENCY AS AN INVESTMENT: VOLATILITY AND PORTFOLIO RISK MANAGEMENT

Abstract

Cryptocurrency has emerged as a transformative investment asset class, revolutionizing traditional financial systems with its decentralized nature and blockchain-based technology. Despite its growing popularity, cryptocurrencies are inherently volatile, presenting both opportunities for substantial returns and significant portfolio risks. This study explores the intricate dynamics of cryptocurrency volatility and its implications for portfolio risk management. It examines the factors contributing to price fluctuations, such as market sentiment, regulatory developments, and technological innovations. The research also investigates strategies to mitigate risks, including diversification, hedging with derivatives, and employing advanced risk assessment tools like Value at Risk (VaR) and Conditional Value at Risk (CVaR). Additionally, the role of investor psychology and behavioral biases in cryptocurrency investment decisions is analyzed. By integrating theoretical insights and empirical evidence, this study provides a comprehensive framework for managing portfolio risks in the highly volatile cryptocurrency market, enabling investors to optimize returns while safeguarding their assets.