Incorporating Crypto-Currencies as Portfolio Investment Asset; A Comparative Study of Pros and Cons in Pakistan

Abstract

This study investigates the incorporation of cryptocurrencies as portfolio investment assets in Pakistan, analyzing both the opportunities and challenges within a developing economy context. The research is grounded in Modern Portfolio Theory (MPT) and Behavioral Finance Theory (BFT), aiming to understand how regulatory environment, technological infrastructure, perceived risk, and market awareness influence crypto adoption through portfolio structuring. Given Pakistan's ambiguous regulatory stance and growing interest in digital finance, this study fills a significant research gap by focusing on investor behavior and portfolio logic in an underregulated setting. Using a quantitative, cross-sectional design, data were collected from 300 digitally aware investors through a structured Likert-scale questionnaire. Partial Least Squares Structural Equation Modeling (PLS-SEM) was employed to test the proposed mediation model. Results revealed that technological infrastructure (β = 0.64) and regulatory environment (β = 0.33) strongly influence the inclusion of cryptocurrencies in portfolios, which in turn significantly affects adoption behavior (β = 0.82). However, model fit indicators suggest areas for refinement. This study offers theoretical insights into hybrid investment behavior and provides practical recommendations for regulators, fintech developers, and investors. It emphasizes the need for improved infrastructure, investor education, and policy clarity to legitimize crypto assets as viable portfolio components.

Keywords: Cryptocurrency Adoption, Portfolio Investment Asset, Modern Portfolio Theory, Behavioral Finance, Risk Perception, Technological Infrastructure, Regulation