Cryptocurrencies like Bitcoin and Ethereum were created to provide a decentralised alternative to fiat currencies. They were meant to act as a store of value and medium of exchange. Almost a decade later they have been successful, and are now an emerging asset class.
One of the main reasons for cryptos to emerge as an asset class is due to increased interest from institutional investors. For the longest time, most institutional investors avoided crypto assets due to volatility and the lack of clear regulations.
The recent shift in the economic landscape however has seen most institutional investors embrace digital currencies. The declining traditional economy has led to institutions looking for an alternative investment option. With the massive gains over the years, cryptocurrencies have become the ideal investment option. Australian institutions like retirement funds have since taken up digital currencies with many more looking to follow.
The approval of exchange-traded funds (ETFs) has also led to an increase in institutional crypto investments. The ETFs allow institutions access to digital currencies without the underlying risks that come with direct access.
Other top financial institutions like banks and hedge funds have also begun offering crypto services. All these work to make crypto an emerging asset class.
Cryptocurrencies have been gaining use cases in recent years. Decentralised applications (dApps) and decentralised finance (Defi) are some of the use cases that have fuelled its market growth.
Unlike before, Defi has made it such that users do not have to rely on traditional financial institutions to borrow or lend money, or insurance and trading. All these can happen on decentralised platforms.
The broadening of crypto and blockchain technology in finance is likely to propel crypto to become a major asset class. Already, several top companies like Times Magazine and financial experts have embraced NFTs. This means the applications have signs of long term success making crypto an ideal asset class for long term investments.
The cases against crypto being an asset class
While the general consensus is that crypto is an asset class, some of the leading financial experts believe the industry is yet to reach such status. When speaking to Goldman Sachs Insights, NYU’s Nouriel Roubini claimed crypto is yet to attain the asset class status.
He said, “Bitcoin and other cryptocurrencies aren’t assets. Assets have some cash flow or utility that can be used to determine their fundamental value… Bitcoin and other cryptocurrencies have no income or utility.”
The financial experts also tend to look into crypto’s market cap to invalidate it being an asset class. For example, Arthur Hayes, BitMEX founder during a discussion at the Global Financial Leadership Conference claimed that crypto is yet to become an asset class. He pointed out that Apple has more cash on its balance sheet than the whole crypto industry market cap.
Cryptocurrencies have become quite a success in the financial world. However, the jury is still out on whether it will become its own distinct asset class. Having been only operational for around a decade, the crypto industry still seems to be an experiment. Still, with all institutional investors embracing it and mainstream adoption, it will more likely than not grow into its own.