Cryptocurrency, by definition, is a digital currency that does not rely on a central authority, such as a government or bank. Rather, it is built on mass collaboration through an innovative underlying technology, called blockchain. One of the most prominent cryptocurrencies, Bitcoin’s proliferation can be understood as a means for speculators to make quick profits after holding Bitcoin for short periods, with the hype around Bitcoin playing a significant role in this regard. Interestingly, investors can use Bitcoin to diversify their investment portfolios and thus decrease the downside risk in case of an economic or geopolitical crisis, or a market collapse.

Well-recognized for his scientific contributions to the field of business and economics, specifically in cryptocurrency, Professor of Finance at the Adnan Kassar School of Business Elie Bouri recently received the 2024 Abdul Hameed Shoman Foundation Award for Arab Researchers and was listed as a Highly Cited Researcher on Clarivate for three years. He was also one of 17 LAU faculty members to be ranked among the world’s top two percent scientists by Scopus Elsevier.

In this interview, Dr. Bouri expands on cryptocurrency and how its implications can transform the investments’ landscape in the future.

What has contributed to your research becoming an important resource for academics and investors alike?

Since late 2016, I have published many seminal papers on the finance and economics of cryptocurrency, specifically Bitcoin, which at the time was the most popular cryptocurrency. One specific paper focuses on Bitcoin’s ability to act as a hedging asset, despite its extremely high price fluctuations, which is how the cryptocurrency can offer risk mitigation in a downturn in the market.

This topic garnered a lot of attention and heated debate. Other researchers expanded on my work, using alternative methodologies, data and other cryptocurrencies, and widened the discussion on this timely and popular topic. My work also focuses on testing the ability of Bitcoin to endure crises in various financial markets, and I managed to find evidence of Bitcoin’s resilience.

This led to multiple citations, and, ultimately, to the Shoman Award, which this year focused on Cryptocurrency in the Economics and Administration Sciences award category.

Beyond academia, my research provides practical implications for investors, portfolio managers and policymakers, opening the door to new debates.

Just 10 years ago, Bitcoin was relatively isolated from the global financial system, making it very suitable for portfolio diversifications. In the post COVID-19 era, Bitcoin became somewhat integrated in the financial system. Therefore, adding Bitcoin today to a portfolio of conventional assets such as stocks would offer less diversification benefits compared to the pre-pandemic period.

Having worked on analyzing other assets before cryptocurrencies, it was easy for me to apply the same methodology to test not only diversification and hedging roles of cryptocurrency, but also its safe-haven property: the ability of cryptocurrency to move in the opposite direction of another asset during uncertain times, offering valuable protection when it is most needed by portfolio managers during market crashes.

Which financial markets does your research focus on? Is the Lebanese financial crisis relevant to your work?

Research involves large data sets that are not usually available for small markets, so the natural choice for me was to measure indices from the global financial market. When it comes to Lebanon, it was useful to consider the indices measuring the performance of stock traded on Beirut Stock Exchange along with others from the region such as the Amman Stock Exchange to illustrate with examples from developing markets.

In terms of the Lebanese financial crisis, investing in a stock market outside the country is a choice, and logically, investing in cryptocurrency is no different. However, it should be noted that investing in cryptocurrency is relatively risky and not for the faint of heart.

What has contributed to the wide popularity of cryptocurrency and its mainstreaming?

In recent years, the price of Bitcoin was subject to fluctuation as news of regulation from the US, Chinese and Korean governments started to circulate. Two particular incidents both directly and indirectly accelerated turning Bitcoin into a mainstream currency.

The first took place in 2017 when the US-based Chicago Mercantile Exchange (CME) Group launched a futures contract on Bitcoin, which exposed investors to cryptocurrency financial derivatives from a prominent exchange for the first time, allowing them to bet on and against the cryptocurrency market and hedge their exposure.

The other major incident was the pandemic, which accelerated digitalization, and directly impacted the adoption of cryptocurrencies as an investment vehicle.

With the increase in interest from the financial press, institutional investors and prominent influencers in the market, positive sentiment contributed to the surge in Bitcoin value, and its adoption—alongside other cryptocurrencies—by large firms in the US.  

In early 2024, the US Securities and Exchange Commission, which oversees the US securities markets, accepted the launch of a Bitcoin spot Exchange-Traded Funds (ETFs), making Bitcoin investment more accessible, liquid, transparent, regulated, and cost-effective to individual investors. The relationship between Bitcoin and conventional assets like stocks and bonds has most likely been strengthened as a result, reducing potential diversification benefits.

What are prominent critiques of Bitcoin and do you believe they will hold in the future?

There has been a debate on whether Bitcoin has any real or intrinsic value. Some people have even accused it of only being used for speculation, that is when traders buy it and then sell it after a short period to make a profit. Others say that it started as a trend, but the fact is that it is gaining momentum.

We also have to consider its main technology, blockchain, which is now widely used across several fields such as financial services, healthcare, real estate, and supply-chain management, which can potentially impact digital economy and society at large.

Just like any asset, Bitcoin experienced periods of price collapse, but so far, it has managed to bounce back, proving that there are potential benefits to cryptocurrency and a practical applicability for the global financial system that cannot be overlooked.

To browse more scholarly output by the LAU community, visit our open-access digital archive, the Lebanese American University Repository (LAUR)