The downturn of the crypto has wiped off billions of dollars from the market but could not shake investors’ confidence in the fundamentals of cryptocurrencies. Crypto has overcome many hurdles since its inception, and its rapid adoption globally has cemented its position among other asset classes. The recent market crash has triggered a debate on crypto being an asset class. The world is polarized on considering crypto as an evolving asset class.
Is crypto an asset class?
Many industry experts & renowned investors perceive crypto as an evolving asset class, although crypto 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 the asset class. As per the popular convention, anything that generates some economic value comes under the ambit of the asset class. The types of value generation can be diverse; for example, Oil, 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 crypto is directly related to the size of the transaction network/ 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 million and perfect collateral to avail liquidity, making its claim stronger to be an evolving asset class. Along with its fundamental properties, its robust global adoption and the engagement of various credible retail and investors or institutional investors qualify it as an official asset class. The masses have shown immense interest & support for the crypto industry, so it’s impossible to ignore their significance as an asset class.
What does the future hold for the crypto industry?
So far, crypto has survived and evolved through the challenges of more than a decade, ensuring that the future will undoubtedly be bright for the industry. Three main factors will drive the growth of the crypto industry in the near future:
1. Volatility & mass adoption of blockchain:
Crypto investors can be divided into two categories: one has a speculative interest, and the other supports the fundamentals of crypto & its use cases. The crypto 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 the largest no. of consumers with a speculative interest in the market.
As the mass adoption of blockchain becomes mainstream and the majority of consumers begin betting on the fundamentals, the crypto market will become stable. The Terra crash was unfortunate, but it has unlined the importance of understanding crypto fundamentals before investing. As a community, we learned our lesson from this crash
and will use our gathered knowledge to improve the ecosystem as we gradually progress towards mass adoption.
2. Crypto regulations & Inclusion:
The positive crypto regulatory framework will boost crypto growth immensely. G7 countries are taking the lead in bringing a fair crypto regulatory framework considering the importance of crypto regulations & legality. Most leading crypto players like Jeremy Allaire, chairman, and CEO at Circle Pay, and Brad Garlinghouse, CEO of Ripple, etc., participated in Davos’s annual World Economic Forum to pitch for a better regulatory framework. It was the first time in the history of WEF that crypto firms dominated the main streets. Crypto has already made its way to the agendas of different governments worldwide, and now it has reached the world’s most prominent business table. Many countries have supported the industry, such as El Salvador, the Central African Republic, France, etc., and many are still figuring their way out to support crypto. Soon, a positive regulatory framework will be in place, and the crypto industry will experience inevitable exponential growth.
3. Perspective, potential & use cases of crypto:
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 of the examples we can observe is the partnership between Visa and Coinbase, where the consumers are enjoying the fusion of crypto & traditional finance. People require the best of both worlds, and that’s the space where the crypto ecosystem will flourish.
The crypto industry has full potential to revolutionize many industries by providing real-world use cases; e.g., by facilitating quick, cheap, and hassle-free remittances, cross-border payments, etc., it can completely disrupt the payment industry. The innovative use cases of crypto also complement the breakthrough technologies like Metaverse, Web 3.0, and NFTs.
Today we have more opportunities to innovate with crypto real-world use cases than ever, and this will be the key to making crypto mainstream.