The truth is that cryptocurrency is an extremely volatile asset. Investors should understand that owning cryptocurrency involves taking a great deal of risk in their portfolios. However, for investors who know how to manage risk, cryptocurrencies could present great opportunities. This study examines whether holding Bitcoin offers any benefits other than potential price appreciation. An estimate that uses the term return for convenience in the carrying cost model shows that the Bitcoin spot contract has a 5.4% premium compared to the futures contract, indicating a holding benefit.
The sources of the premium are restrictions on short selling in Bitcoin spot markets and voting rights. Restrictions on short selling keep spot prices lower. The value of voting rights becomes more apparent when a vote is likely to take place. When a major proposal is made to the Bitcoin network, the holding benefit increases by an additional 5.6%.
Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency. A safer but potentially less lucrative alternative is to buy shares in companies exposed to cryptocurrency.
