The Impact of Cryptocurrency Inclusion on Portfolio Performance: Risk-Return Tradeoffs and Market Integration

Abstract

The integration of cryptocurrencies into investment portfolios has attracted significant interest among scholars and practitioners, yet their capacity to improve or detract from portfolio performance remains subject to ongoing debate. This study examines the risk-return dynamics linked to incorporating cryptocurrencies into conventional investment frameworks, with a focus on diversification potential, volatility transmission mechanisms, and the interplay between cryptocurrencies and traditional markets. Although prior research has addressed these dimensions, critical gaps persist concerning the sustainability of cryptocurrency allocations over extended periods, their behaviour during periods of severe market stress, and the implications of evolving regulatory landscapes. By synthesising insights from contemporary empirical analyses and quantitative financial models, this paper systematically evaluates existing evidence and identifies priority areas for future scholarly inquiry. The findings aim to inform both academic discourse and practical portfolio strategy in an era of rapid financial innovation.