The recent market crash coupled with cryptocurrency’s rapid adoption has triggered a polarising debate — can crypto be considered as an asset class?
Many industry experts and renowned investors perceive crypto as an evolving asset class, although crypto critics are not yet on the same page
Today, we have more opportunities to innovate with the crypto real-world use cases than ever. Crypto technology has the power to give birth to a whole new brand of ideas
The downturn in the cryptocurrency market might have wiped off billions of dollars from the market but investors’ confidence in the fundamentals of cryptocurrencies remains unshaken. Since its inception, crypto has faced various hurdles when it comes to government regulation. However, the recent market crash coupled with cryptocurrency’s rapid adoption has triggered a polarising debate — can crypto be considered as an asset class?
Is Crypto An Asset Class?
Many industry experts and renowned investors perceive crypto as an evolving asset class, although critics are not yet on the same page. Before we shape our opinion, I would like to start with a fundamental analysis of what quality comprises an asset class.
As per the popular convention, anything that generates some economic value comes under the ambit of an asset class. The types of value generation can be diverse. For instance, the value of oil is directly proportional to the size of the transportation network. If the latter decreases, the value of oil will also decrease.
Similarly, the value generation of a digital asset is directly related to the size of the transaction network or blockchain. The intrinsic economic value of cryptocurrency will enhance with the increase of immutable information stored on its blockchain.
Apart from generating economic value, it also possesses properties of commodity assets like gold. It is scarce similar to precious metals. For example, Bitcoin has a supply limit of 21 Mn and it acts as perfect collateral to avail liquidity, making its claim to be treated as an evolving asset class stronger.
Along with its fundamental properties, its robust global adoption and the engagement of various credible retail and institutional investors qualify it as an official asset class. The masses have shown immense interest and support for the crypto industry. This makes it difficult to ignore their significance as an asset class.
What Does The Future Hold For The Crypto Industry?
The past few months have been quite difficult for the Indian crypto industry with new tax rules and payment mechanism challenges. However, there is hope that investors will regain confidence in digital assets after the market stabilises. The three factors that will help investor confidence and drive industry growth are:
Volatility & Mass Adoption Of Blockchain
Crypto investors can be divided into two categories — one with a speculative interest, and the other supports the fundamentals of crypto and its use cases. The industry’s growth will be dictated by how long the speculative interest will persist in the market. The reason behind the volatility of the crypto market is that a large number of consumers have a speculative interest in the market.
As the adoption of blockchain becomes mainstream and the majority of consumers begin betting on the fundamentals, the crypto market will become stable. The TerraUSD crash was unfortunate, but it underlined the importance of understanding the fundamentals before investing.
Crypto Regulations & Inclusion
Amid the regulatory grey area that digital assets function in, it becomes vital that a positive cryptocurrency regulatory framework be considered. Acting on this belief, the G7 countries have taken the lead.
This year’s World Economic Forum saw crypto firms dominate the main streets for the first time. It saw the participation of leading crypto players such as Circle’s Jeremy Allaire and Ripple’s Brad Garlinghouse, among others. With being given space at the world’s most prominent business table, crypto is making a way into the agendas of different governments worldwide.
Perspective, Potential & Use Cases
The idea of crypto replacing the traditional financial system came into existence with the innovation of Bitcoin. However, instead of unseating conventional finance, it is much more likely to complement it. One such instance is the partnership between Visa and Coinbase, where consumers experience the fusion of traditional finance and cryptocurrency. This is the space where the crypto ecosystem will flourish.
The crypto industry has full potential to revolutionise other segments by providing real-world use cases. It has the potential to disrupt the payment industry by facilitating quick, cheap, and hassle-free remittances, and cross-border payments, among others. Additionally, it can also be deployed to complement breakthrough technologies like Metaverse, Web 3.0, and NFTs.
Today, we have more opportunities to innovate with the crypto real-world use cases than ever. Crypto technology has the power to give birth to a whole new brand of ideas. The future is decentralised.
