Harmony and Diversity: Integrating Cryptocurrency with Traditional Assets in Investment Portfolios

This research explores the integration of cryptocurrencies, specifically Ethereum, into existing portfolios, assessing their performance from 2019 to 2024. Using Modern Portfolio Theory (MPT) and the Efficient Market Hypothesis (EMH), the study analyzes the performance of portfolios with cryptocurrency inclusion compared to those without. Data on Ethereum and the S&P 500 from Yahoo Finance are utilized to examine portfolio diversification and returns amidst global market turmoil. Historical performance data help implement various portfolio strategies, from fixed to dynamic rebalancing. The study considers transaction costs and rebalancing frequency, highlighting the trade-offs between higher returns and operational costs in portfolios containing cryptocurrencies. The conclusion emphasizes that strategic rebalancing is crucial for maximizing returns while managing risks, especially given the high volatility of digital assets. The research contributes significantly to the academic field, offering new insights into the inclusion of cryptocurrencies in diversified investment strategies, and lays the foundation for future studies on asset allocation and portfolio optimization in the digital financial landscape.