Unlocking blockchain-driven financial opportunities: optimizing portfolios with cryptocurrencies and European stock markets

This study explores how integrating cryptocurrencies into traditional financial portfolios can influence investment performance. Focusing on Bitcoin and Ethereum alongside key European stock indices (BUX, DAX, and FTSE), the analysis examines whether blockchain-based assets can enhance diversification and improve the balance between risk and return. Using weekly market data from 2019 to 2023, the research applies Markowitz mean–variance optimization to identify optimal asset allocations under different objectives such as maximizing the Sharpe ratio, minimizing risk, and maximizing returns. The findings reveal that cryptocurrencies show weak correlations with European stock indices, suggesting meaningful diversification potential. When included in portfolios, Bitcoin and Ethereum can significantly boost returns, though they also increase volatility. Portfolios optimized for risk reduction favored traditional indices, while those targeting higher returns relied predominantly on cryptocurrencies. Overall, combining digital and conventional assets produced a more balanced performance, with the Sharpe-ratio–maximized portfolio demonstrating the best trade‐off between stability and profitability. These results indicate that cryptocurrencies can play a valuable complementary role in modern portfolio construction. They are most suitable for investors willing to accept higher risk in exchange for potentially greater rewards, while more risk‐averse investors may benefit from maintaining a stronger focus on traditional equity indices. The study contributes to understanding how blockchain‐driven assets can expand financial opportunities and supports a broader view of diversification in contemporary investment strategies.