Crypto as an asset class
Avinash believes crypto has all the attributes of an emerging asset class. Attributes include retention of value over space and time for years and some legitimate use cases. He thinks the use cases for cryptocurrencies could be even bigger than the internet, which will only come into play in the later stages of the digital revolution. Another important trait of this asset class is volatility, which is an inseparable trait of any growing asset class, as has also been the case with oil before. He thinks the volatility of virtual assets would decrease as it becomes more firmly established. At the same time, he claims that price volatility will not decrease due to growing financial literacy among crypto enthusiasts and a consequent increase in crypto buyers and traders over the past 5 years. The fear of missing out (FOMO) has also decreased from before and will continue as crypto users mature.
However, Avinash sees no relationship between volatility and the decentralized nature of cryptocurrencies. He champions the essentially decentralized nature of cryptocurrencies, where users wield power and set rules that make crypto the most sought-after and unique asset class. He believes that a truly decentralized system reduces the risk of manipulation and abuse. The novelty of this asset class having a 24/7 trading regime also makes it an attractive option.
Joël also believes that the speculative nature of the asset comes from its nascent phase. However, he believes that this decentralized asset has a self-regulating market as evidenced by various countries like Dubai, the United States which have a clear set of regulations and even India is working on it regularly.
Sumit Ghosh, co-founder and CEO of Chingari says:
“People have shown immense confidence in cryptocurrencies over the past two years. One of the main reasons people invest in crypto is because people are looking for better returns. For example, Bitcoin’s supply will never exceed 21 million, making it a desirable, inflation-resistant store of value. that it’s on track to overtake global tech powerhouses like Microsoft in the near future. In terms of investment opportunities, it should be classified as an asset class.”
How speculative is a crypto asset and what kinds of changes trigger volatility?
Joel reasons with three arguments. First, every new technology goes through the rapid speculation stage, whether it’s shipping routes or the Internet in pursuit of growth and adventure. Second, crypto is viewed curiously and as a viable source of income in India, where access to it is regulated. Third, it could also be because bitcoin mimics stocks and currencies. However, the continued speculation around cryptocurrencies despite bitcoin’s stronghold could be due to its perceived image as a gambling asset, the frantic hunt for economic opportunity, and the widespread availability of the internet. All of this requires people’s financial literacy.
Concentration of Crypto Assets Among Early Investors May Drive Prices Down if They Liquidate Their Holdings
Joel believes that crypto assets are concentrated in the hands of early investors and enriched them as they reaped rich dividends from the exponential increase in the price of cryptocurrencies over the following years. Their high risk appetite has also helped them hold it for a long time. In such a scenario, the sale of a large amount of crypto by these whales would reflect slightly in the market and as for the liquidity, it would be quickly absorbed by the market.
The basis for classifying crypto as an asset class
Is crypto a peer-to-peer electronic payment system or a way to earn short-term gains or a new decentralized blockchain technology with use cases? Can it be classified as an asset class? Avinash calls crypto a great asset class where Bitcoin and Ethereum serve as a store of value and a reservoir of use cases, respectively. These will continue to grow and have reached maturity. Bitcoin has specifically become an asset class due to people looking for long-term gains rather than speculative trading. The decentralized network also cannot be missed, which in itself is a revolutionary entity that may soon overtake social media and other platforms.
The idea of decentralization and crypto as an asset class
Avinash highlighted the fact that decentralized finance (DeFi) is an integral part of the crypto ecosystem and that cryptos are needed to facilitate transactions on DeFi. For example, in the DeFi Compound network, the compound token is a crypto token built on the blockchain of other cryptos. The other use cases of crypto NFT, DeFi lending and borrowing, Dapps, and other blockchain products that are different parts from the same crypto ecosystem.
Can Mass Adoption of Crypto as an Asset Class Happen Worldwide?
The rapid growth of cryptos is indicative of further adoption, but not without some hurdles. Initially, Joel states that the first wave of change has already happened. He justifies the inevitable and impending rapid expansion and adoption of cryptocurrencies by citing today’s must-have household items like the refrigerator, television, and Internet that were equally revolutionary, modern, and against the grain when they were introduced. were invented. Mass crypto adoption would mean a lot of crypto transactions without involving the purchase of tokens and the use of crypto ATMs. It would involve much more and beyond like the transformation of communication technologies and social media with the metaverse, games, Web 3.0, regional innovations. He thinks the change would happen within 2 years and attract a lot of young people.
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Crypto products and NFTs are unregulated and can be very risky. There may be no regulatory recourse for any loss arising from such transactions.