Is it Possible to Classify Cryptocurrency as an Asset Class?
By Urvashi Arya
We are all aware that asset classes such as equity, fixed income, real estate, cash, and commodities exist. Some individuals also debate whether or not "Art" is an asset class.
And now there's a new discussion about whether crypto is a new asset class in and of itself, or merely an alternative currency or, at best, a speculative tool.
Is cryptocurrency considered an "Asset Class"?
If you closely look at the "fixed income" asset class, you'll notice that it includes a variety of instruments such as fixed deposits, PPFs, EPFs, Senior Citizen Saving Schemes, NSCs, and debt mutual funds.
You'll notice that they share several qualities (because they're all essentially loans to someone) and that the laws and regulations are similar across the country and abroad (though the names of products can be different)
The same may be stated for the real estate asset class, where land, bungalows, REITs, and commercial establishments are all physical areas whose prices fluctuate based on comparable factors.
Simultaneously, many crypto investors purchase it primarily for speculative purposes rather than as a fundamental investment tool. They expect it to appreciate owing to some real cause related to the economy or its use.
Why do I refuse to view cryptocurrency as an asset class?
Cryptocurrencies have exploded to become famous over the last 3-4 years, with significant cryptos like Bitcoin, Ethereum, Tether, and others seeing their market capitalizations reach billions of dollars. It's a complicated world dependent on even more complex technology, unlike other asset classes that are relatively simple to describe and comprehend for the average person.
Try discussing Real Estate or Equity with someone unfamiliar with the Crypto mining process, and you will see what I mean.
Another reason I don't think of cryptocurrencies as an asset class is because it is ultimately just a piece of software code. Are we arguing that anything so reliant on a computer and energy is considered an asset class, even though it is widely accepted and used? What happens if the world runs out of electricity or all computers fail one day?
Things like equity, debt, real estate, cash (in any form), commodities, and art, on the other hand, will all persist and exist in some way.
Do you think of cryptocurrency as a new asset class or just a new type of online payment system?
Whether you wish to view it as an asset class or not is a matter of perception. Could you please try to explain how you came to this conclusion? What are your thoughts about it?
Disclaimer: Am I implying that the value of cryptocurrencies will not rise? All I'm disputing is whether it should be classified as an asset class or not.