Cryptocurrency Portfolio Management Based on Usage Characteristics Criteria Applying R-Vine Copula

This study proposes cryptocurrency portfolio management with asset selection based on usage criteria, as the direction of price variations between usage categories varies according to conventional financial concepts. The study used data from seven major types of cryptocurrencies: the storage of value, Smart contracts, Decentralized finance, Value transfer, Oracle, and Stable coins and the Meme type. The data is collected from a daily time series for the period from 20 November 2019 to 21 March 2022. The study used the Vine Copula method to analyze dependence before estimating the optimal portfolio with the least variance based on Markowitz’s theory. These results imply that the least variance portfolio should incorporate ETH, BUSD, and BTC. It further suggests that the portfolio include some DiFi. In addition, Doge coin (Meme type) is the root node of all cryptocurrency assets. When Doge coin volatility is high, investors should be cautious.