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The literature has recently begun to investigate the properties of cryptocurrency markets to identify key drivers for the use of cryptocurrencies in investment strategies. This paper provides a comprehensive review on the financial applications of Bitcoin. The focus is on three lines of research: price formation, detection of market inefficiency, and diversified portfolio construction. Topics such as market micro-structure and the interplay between different cryptocurrencies are only touched on briefly. We observe that many empirical studies find that Bitcoin markets are inefficient, with huge price fluctuations and long-range memory, and that these markets are heavily influenced by news and sector-specific events, or by infrastructure conditions such as volume trading and market liquidity. Nevertheless, astonishing price appreciations and modest correlation values versus other asset classes have contributed significantly to motivate applications of Bitcoin to investment and diversification. Future research may address practical implementations of such solutions and investigate the long-term sustainability and viability of these investment strategies.
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