The risk analysis of Bitcoin and
major currencies: value at
Umut Uyar and Ibrahim Korkmaz Kahraman
Pamukkale Universitesi, Denizli, Turkey
Purpose –This study aims to compare investors of major conventional currencies and Bitcoin (BTC)
investorsby using the value at risk (VaR) method common risk measure.
various computations that Historical Simulation and Monte Carlo Simulation methods were used for
Findings –Findings of the analysis are assessed in two different aspects of singular currency risk and
portfolios built.First, BTC is found to be signiﬁcantly risky withrespect to the major currencies; and it is six
times riskier than the singular most risky currency. Second, in terms of inclusion of BTC into a portfolio,
which equallyweights all currencies, it elevates overall portfolio risk by 98 per cent.
Practical implications –In spite of the remarkable risk level, it could be considered that investors are
desirous of making an investment on BTC could mitigate their overall exposed risk relatively by building
Originality/value –The paper questions the risk level of Bitcoin, which is a digital currency. BTC, a
matter of debate in the contemporaryperiod, is seen as a digital currency free from controlor supervision of a
regulatory board. With the comparison of major currencies and BTC shows that how could be risky of
aﬁnancial instrument without regulations. However, there is some advice for investors who would like to
invest digitalcurrencies despite the risk level in this study.
Keywords Value at risk, Bitcoin, Major currencies, Money market
Paper type Research paper
As a result of the unprecedented pace of technological advancements accompanied by the
further globalization of the world, money transfers and trades are executed heavily on the
internet in our contemporary world. Fast-paced penetration of the internet usage emerged
digital money transfer system. In such unreliable system free from supervision of any
authority, various digital currencies are used e.g. Bitcoin (BTC). Development of digital
currencies as a new exchange methodhas long been foreseen. Nobel Prize economist Milton
Friedman addressed in 1999 that expansion of internet usage and advancements in
technology would eventuate in the invention of digital money allowing trade and out of
reach of government control(Wegdell and Andersson, 2014, p. 8).
The BTC system, the contemporary argument, relies on an article of “Peer to Peer
Electronic Cash System”publishedby Satoshi Nakamoto in 2008 (Nakamoto, 2008). Satoshi
Nakamoto, deemed to be the Founder of the BTC system, does not stand for a real person.
Furthermore, it is claimed that this name is associated with large-sized technology
companies in a way that while “Sa”part of this name refers Samsung, “Toshi”refers
Journalof Money Laundering
Vol.22 No. 1, 2019
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