The applications of MCDM methods for the selection of cryptocurrencies in portfolio formation

Abstract

At the end of 2022 cryptocurrency market capitalization was around 800 billion US dollars. As the market rapidly grows and matures, interest in investing in cryptocurrencies increased not only among private investors, but among banks, pension funds and other institutions as well. Investing in cryptocurrencies is associated with high potential returns and a very high risk. In the cryptocurrency market (same as in the stock market) investors face a huge problem of investments’ selection when forming a portfolio. The main goal of this scientific article is to apply multi-criteria decision making (MCDM) methods in order to solve this problem. We analyze 10 largest cryptocurrencies by market capitalization, taking into account 5 selected criteria. MCDM methods make it possible to comprehensively evaluate and select the most attractive cryptocurrencies. 3 MCDM methods were used – SAW, TOPSIS and EDAS. The results have shown that most suitable cryptocurrencies to include in investment portfolio are Bitcoin and Ethereum. The method presented in this study can be applied in practice when selecting cryptocurrencies.