RISK MANAGEMENT IN CRYPTOCURRENCIES: A PORTFOLIO PERSPECTIVE

Abstract

This study analyzes the role of cryptocurrencies in portfolio diversification by comparing their risk-return profiles to traditional assets using correlation analysis, risk-adjusted metrics, and Monte Carlo simulations. Cryptocurrencies show the potential for higher returns but introduce substantial volatility and tail risk. Strategies such as VaR, CVaR, futures, and stablecoin allocations mitigate risks, with optimal exposure capped at 5-10% to balance returns and risk tolerance. Cryptocurrency markets remain sensitive to regulatory shifts, necessitating adaptive risk frameworks and continuous correlation monitoring of institutional investors. Policymakers are urged to clarify regulations to foster institutional adoption, and future research should explore DeFi tokens and CBDCs. These findings provide insights for managing crypto-inclusive portfolios in evolving digital asset markets. Future research directions include exploring decentralized finance (DeFi) tokens and central bank digital currencies (CBDCs) as emerging diversification tools. These insights equip investors with strategies for navigating crypto-inclusive portfolios in evolving digital asset landscapes.