ANALYSIS OF SECURITY RISKS AND VOLATILITY OF CRYPTOCURRENCY ASSETS AS DIVERSIFICATION TOOLS

Abstract

The article is devoted to the analysis of the application of cryptocurrency instruments in the diversification of investment portfolios. The study considers specific security risks, high market volatility, and behavioral instability of the digital financial environment. The cryptocurrency market is gradually integrating into the global financial architecture. It demonstrates sensitivity to central bank monetary policy, information flows, geopolitical crises, and technical failures of digital platforms. The purpose of the study is to develop an adaptive model for controlling the risks and volatility of digital assets within a diversified portfolio. The empirical basis was formed using market data for 2023–2025. The analysis covers the dynamics of Bitcoin, Ethereum, stablecoins, decentralized finance instruments, environmentally oriented crypto assets, traditional stock indices, gold-based instruments, and green bonds. The research methodology is based on correlation analysis, volatility spillover modeling, economic and mathematical calculations, Conditional Value at Risk, downside risk assessment, as well as the use of safe haven and portfolio stability indices. The results indicate that digital assets optimize the risk-return ratio only under conditions of limited exposure and regular rebalancing. Empirical data confirm the higher resilience of Bitcoin and stablecoins during banking and inflationary shocks. In contrast, decentralized finance tokens, NFT instruments, and meme coins generate substantial losses and high instability. Based on the obtained results, standard portfolio models were developed for conservative, balanced, institutional, and ESG-oriented investors. The highest stability indicators were recorded in hybrid structures and algorithmic balancing models. These models include automated rebalancing and a moderate share of Bitcoin, stablecoins, environmentally oriented crypto assets, and gold-based instruments. The practical significance of the study lies in the development of methodological recommendations for constructing resilient investment strategies under conditions of increased market instability.