Value at Risk with Bootstrap Historical Simulation Approach for Prediction of Cryptocurrency Investment Risk

Abstract

In the era of the digital economy, cryptocurrency has emerged as a new transaction tool and investment asset that is widely used by people all over the world. Cryptocurrencies are preferred because their security and privacy are guaranteed, and can provide greater profit potential than conventional financial investment assets (stocks, bonds, etc.). Although it can provide the possibility of higher returns, investing in cryptocurrencies does not mean that it is risk-free. Therefore, we need to know the estimated risk of loss that will occur to prepare a strategy so that the investment does not go bankrupt. This article aims to calculate predicted losses in the Top 5 Cryptocurrencies (as of June 2021) using VaR with the Bootstrap Historical Simulation approach. Using historical cryptocurrencies data from 01/07/2019-16/07/2021, at a 95% confidence level and a holding period of 1 day, the cryptocurrency with the highest risk of loss is Cardano (ADA), with a VaR value of 8.62%.