The growth of the crypto markets has changed the investment environment in a profound manner by elevating cryptocurrencies from purely speculative assets to institutional-grade investments. The current paper evaluates the investment characteristics of Bitcoin and Ethereum, the most popular cryptocurrencies, based on the modern portfolio theory framework. According to the analysis carried out for 2020-2025, the Bitcoin asset demonstrates an impressive Sharpe ratio of 1.7, substantially exceeding that of the S&P 500 (0.54) and gold (0.48-0.54). In favorable market conditions, Ethereum outperforms Bitcoin in terms of risk-adjusted returns, exhibiting even better characteristics. The study highlights a change in the mechanism of price fluctuations in the market from the \\\"four-year cycle\\\" to the flow of institutional capital. At the same time, correlation analysis shows that despite the absence of high correlation of these assets with other asset classes over the long term, the correlation between the two increases under market pressure. As a result, 1-4% of portfolio weight can be safely allocated to each asset, depending on the investment strategy.
Assistant Professor Dr. Shweta Oza (Thu,) studied this question.