Is Cryptocurrency an Asset Class



If you've been following the financial news lately, you may have noticed that many top investment firms are considering adding cryptocurrencies to their portfolios. The topic of whether cryptocurrencies should be considered an asset class is one that is hotly debated in investment circles. We'll look at both sides of this argument and determine if cryptocurrency really qualifies as an asset class.

What Is an Asset Class?

The term "asset class" refers to a group of assets that share some common characteristics. The most famous asset classes are tangible assets, such as stocks and bonds, but there are also intangible asset classes—like the bond market or the stock market—which can be equally valuable for investors.

Asset classes are also known as "investment classes" because they include a broad range of assets that tend to be attractive to investors. For example, an investor might invest in stocks or bonds, but not both. In this case, the investor would be investing in an asset class rather than a specific asset.

When you hear the term asset classes, it is more than likely referring to four types: Cash, Bonds, Stocks, and Real Estate. Each has a different level of risk and return. The first three are typically liquid assets, meaning they can be sold at any time for cash. Real estate is an illiquid asset class because it's much harder to sell off part or all of your home quickly.


Is Crypto an Asset Class?

It's a question that's been debated for some time now: is cryptocurrency an asset class? Maybe—but it's not as cut and dry as that. Back in 2017, the answer was pretty simple. Cryptocurrency could be used to transfer value and store wealth. That alone made it a strong candidate for being considered an asset class.

However, with the advent of utility tokens, things get a bit more complicated. It's no longer just about buying these assets because they're considered valuable; now you have to consider what they're used for beyond just transferring or storing wealth (e.g., paying for goods/services). This can make them harder to classify within traditional categories like stocks or bonds—so while they may share similarities with those types of investments (like having supply-and-demand dynamics), their function isn't really comparable either--which means we might need new terminology in order to better understand how these things operate!

When we look at the question from this perspective, things get even more complicated. If something can be used to transfer value or store wealth, but its main use is something else—like paying for goods/services--then it becomes more difficult to classify within traditional categories like stocks or bonds (which have supply-and-demand dynamics). Crypto projects also tend not to have a physical presence like real estate does.

What Are Some Examples of Crypto Assets?

Some examples of cryptocurrencies are Bitcoin, Ethereum, Litecoin, Ripple and Cardano. Some crypto assets that have received more attention recently include Tezos (XTZ), EOS (EOS) and Tron (TRX).

With so many crypto assets out there, it can be difficult to know what is what. There are more than 19,000 cryptocurrencies available, making it difficult to navigate through the myriad of cryptocurrencies available.

Types of Crypto Investments

  • Crypto Tokens: A crypto token is a unit of value issued on a blockchain network. It is similar to an equity or share. You can buy and sell them on exchanges, or hold them as an investment.
  • Crypto Bonds: A bond backed by cryptocurrency is similar to buying shares in a company that issues its own cryptocurrency to investors for profit generation and capital raising purposes. This type of crypto is that it can provide passive income through interest payments from the issuer, who pays you with its own coins instead of cash when you redeem your investment at maturity (it's like getting dividends).
  • Crypto Futures: A contract for future delivery between two parties where one agrees to buy something at a prearranged price sometime in the future (like commodities), but doesn't have any obligation until then.
  • Crypto Options: An instrument used by speculators who want more flexibility than what futures offer but less volatility than holding onto actual tokens themselves.* Swap Swaps allow two parties agreeing upon notional values; they're then swapped back so both parties get exactly what they initially put down at no cost.
  • Crypto Forwards are used primarily by banks as instruments against fluctuations in interest rates; they allow clients to lock-in today’s rates today so they don’t increase tomorrow which would cause losses if left unchanged over time.


Risk and Returns of Crypto

Fortunately, risk is a factor you can control. You can mitigate your exposure to crypto’s volatility by investing through an index fund or ETF (exchange-traded fund) that tracks the performance of a specific crypto asset class. But with crypto still in its infancy, it’s important to be aware of how much volatility you’re taking on when you invest in cryptocurrency. The last twelve months, crypto investors have experienced a wide range of volatility. You may have read the news of Bitcoin or Ethereum and how they have experienced large losses.

In fact, many people don't fully understand the risks associated with cryptocurrency investments until they're already invested and then experience big losses overnight. Crypto is probably not the best place to learn the lessons of volatility, risk and diversification.


The Dangers of Crypto

The dangers of crypto are numerous, but the most significant are its lack of regulation, security and liquidity.

Cryptocurrencies have no intrinsic value. They can be worth more or less at any given time. In fact, in 2018 there were two major market crashes: one in January and another in December. The crypto market is not only volatile—it’s also unregulated. Last year saw many scam companies take advantage of investors who were looking for quick gains from cryptocurrencies without doing proper research on their investments or understanding how they work. These scammers often sell fake coins or funds that never arrive to people who have invested with them.

There are also hackers who target exchanges where people buy and sell cryptocurrencies like bitcoin (BTC) or ether (ETH). This has led to huge losses for many investors as well as stolen funds being used by criminals for illegal activities such as money laundering or purchasing black market goods such as drugs and weapons. These darknet markets or what is called the "dark web" have been shut down by law enforcement agencies worldwide.

Crypto Volatility

Before we get into the nitty-gritty of cryptocurrency, let's first talk about what volatility means. Volatility is a measure of risk and refers to the degree to which something fluctuates in value. If a stock, for example, has high volatility, it may go up or down by 10% or more in a single day.


Investors should be cognizant that crypto is very volatile and can increase and decrease quickly over time—sometimes drastically so.

Crypto Regulations in the U.S.

One of the main reasons why crypto is not an asset class is because it's not regulated by traditional financial institutions. For example, crypto isn't currently regulated by the SEC, CFTC or CFPB. It also doesn't fall under other agencies like OCC or OFAC (Office of Foreign Assets Control).

One of the fiercest critics of cryptocurrency is the SEC Chairman, Gary Gensler. Gensler has stated publicly that the crypto industry is "rife with fraud, scams and abuse." In early May of 2022, Gensler increased his staff at the SEC for crypto enforcement. There is a debate among governmental agencies regarding who will enforce and regulate rules for crypto. It appears that some sort of oversight is imminent. Congress is getting involved and possibly seeking oversight by the CFTC (Commodity Futures Trading Commission) since in their view crypto is a commodity (like gold).

So, cryptocurrencies have shown promise as an alternative to traditional money, but they're not without risks.



While it’s up for debate whether or not cryptocurrencies are an asset class, there are still some things that investors should understand before investing in them.

First, you need to know how crypto investments work and what kinds of risks they entail. Secondly, you should evaluate your own financial situation to see if this kind of investment fits into your overall financial plan and strategy (this will help you determine whether or not you can afford any potential losses that might come with investing in crypto assets). Lastly, since regulations are currently being weighed, its important to understand the potential downside risk of investing in something with a limited history or information.

If we can be of any help and guidance regarding your financial plan and future, please do not hesitate to contact us.