So the topic of debate today is “Is Cryptocurrency like Bitcoin be considered as an asset class?”
Till now we all know that there are many asset classes like Equity, Fixed Income, Real Estate, Cash and Commodities. Some people also argue if “Art” is an asset class or not.
And now, there is this new debate is crypto is the new asset class in itself or just an alternate currency or at best a speculative instrument?
Does Cryptocurrency fall under the definition of “Asset Class”?
Investopedia defines Asset Class as follows :
An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset classes are made up of instruments which often behave similarly to one another in the marketplace.
If you look at “fixed income” asset class and see various instruments under it like Fixed Deposit, PPF, EPF, Senior Citizen Saving Scheme, NSC, Debt mutual funds etc. you will see that they have common characteristics (As they all are basically a loan given to someone) and various laws and regulations are similar across the country and globally (though the names of products can be different)
The same thing can be said to the Real estate asset class where Land, bungalow, REIT, Commercial shops all are physical spaces and their prices go up and down mainly due to similar reasons.
Can this be said for various cryptocurrencies also?
While all of the cryptocurrencies are basically a digital payment alternative based on blockchain technology, we are not very sure if it can also be considered a “store of value” unlike other asset classes. Also, there is no common agreement on how various countries want to see cryptocurrency? While there are various countries that have legalized crypto, there are many that have not done that.
At the same time, a large chunk of crypto investors is buying it mainly for speculative reasons and not as a fundamental investment instrument where they want it to grow in value due to some fundamental reason linked to the economy or its usage.
Here is an excerpt from a paper, which gives more idea on what I am saying!
Why I personally don’t want to consider Crypto as an asset class?
Cryptocurrencies have gained extreme popularity in the last 3-4 yrs and major crypto’s like Bitcoin, Ethereum, Tether etc has seen its market cap go into billions. It’s a complex world based on a very complex technology, which is again not like other asset classes which are quite easy to explain and understand for a common man.
Try explaining Real Estate or Equity to someone against the Crypto mining process and you will understand what I am trying to say.
Another reason why I personally don’t consider Crypto as an asset class is that cryptocurrency is in the end purely a software code. While it’s widely accepted and used, Are we saying that something which is so much dependent on a computer and electricity is considered as an asset class? What will happen if one day the world runs out of energy or all computers crash?
In the same case, things like equity, debt, real estate, cash (in any form), commodities, art all will survive and be there in some form.
When I asked this question on our telegram group and on Twitter, here were the responses.
Do you consider Crypto as another asset class or just a new-age online payment technology?
Coming to you, it’s also a matter of perception if you want to consider it as an asset class or not. Can you please share your thought process around it? What do you consider it?
Disclaimer: I am not saying that cryptocurrencies will not rise in value? All I am debating is if it shall fall under the definition of asset class or not?