Could Bitcoin be a new digital gold

This bachelor thesis aims to examine properties of Bitcoin in comparison with traditional assets, the S&P 500 index and gold over the period of 2014 – 2020. First goal of this thesis is to investigate relationship between the risk and return, which is accomplished with the use of Capital Asset Pricing Model. Four weeks and one-year US Treasury Bills are used as a risk-free proxy, and S&P 500 index as a market proxy. Estimates show strong detachment from the market risk, thus, suggesting independency of Bitcoin returns on market movements. Second goal was to estimate characteristic properties of Bitcoin market volatility. The results of APARCH model indicate that Bitcoin market volatility has a long memory to persist in the future, and the volatility is more sensitive to its past values than to the new shocks of the market values. The estimates of APARCH model indicate the absence of leverage effect in Bitcoin market. Third goal was to examine the relationship between volatility of Bitcoin and traditional assets. The results of DCC-GARCH model show historically low correlation between Bitcoin and traditional asset classes. However, since the beginning of 2020, the conditional correlation has slightly increased. Last goal was to investigate the role of Bitcoin in a portfolio. The results indicate that Bitcoin investment offers significant diversification benefits, and even a small proportion of Bitcoin may dramatically improve the risk-return trade-off of investment portfolio.