Is Cryptocurrency belonging to an asset class and how it is linked to other markets?

Pan Zhao

Engl106-73

5 March 2019.

 

Is Cryptocurrency belonging to an asset class and how it is linked to other markets?

Cryptocurrency is classified as an emerging technology asset class. Bitcoin is an old currency that is ten years old but the role that cryptocurrency play is still not clear in the global market because its primary use is still not defined. Thus, the evidence of cryptocurrency with other asset classes is still unclear. Bitcoin is successfully operating in the market and daily there are more than 250, 000 transactions in a day of bitcoin and other cryptocurrencies are also developing but the relationship of cryptocurrencies with other asset classes is still developing (Bianchi). Every asset is classified into three main classes that are capital asset class, consumer asset class, and store of the value asset class. But the cryptocurrency is still undefined of which asset class does it belong.

Cryptocurrency is a digital currency that is used under the encryption technique. This currency is mostly used by upper-class people. There are limited applications available that store and send this cryptocurrency. Thus to meet the need of people a Cryptocurrency application is designed that is an iOS application and this is capable of storing and sending the Cryptocurrency. This application also enables the use of different currencies to store and spend. Hardware is also designed that will store this Cryptocurrency. This application also supports the communication between the iOS application and hardware through this application the trading of Cryptocurrency will be made possible (Dean).

A cryptocurrency is a digital form of currency so its synchronization with high technology is important because, without this, it is not possible to circulate in the digital world. Therefore, its relationship with new technology is highlighted in the above section for understanding the basis of this currency. But the question that is aimed to discuss is the asset classification of cryptocurrency that is still unclear to investors and professionals of institutes are not able to classify it due to its wide-ranging attributes (Michael J. Tyrkus). After the bitcoin, the development in the blockchain ecosystem continues to develop but its categorization to the asset class and its relationship to financial markets is still clear. Therefore, through this proposal, it is aimed that this ambiguity will be justified as under the findings that are till now present.

What asset class best fit to cryptocurrency is a highly debatable question because it changes as the community focuses and develop different roles of cryptocurrency. It is not classified as an asset class because it does not generate cash flow and not generated from holding the asset. Some investing institutes argue that cryptocurrency fits into a consumable asset class because it plays the main role in the blockchain ecosystem (Bianchi). Some financial institutes classified it as an uncorrelated financial asset. Because they believe that diversified benefits can be attained from it by adding this as an uncorrelated asset to their portfolio (ShaenCorbet). Cryptocurrency is uncorrelated as any other asset class that makes it an attractive asset for investors. From all these arguments of financial institutes, the cryptocurrency asset class is still not developed as it is more correlated with other asset classes therefore, its relationship is still unclear. Hence, in this paper, it is aimed to Investigate the relationship of cryptocurrency to an asset class and how it is linked or traded in other markets.

Cryptocurrency is an emerging field that is booming with time. Now only billionaires and milliners are the key players of this market but soon its use becomes common in the market. But it is still unclear under which category of asset class it is classified so that its trading can be enhanced accordingly. This topic is highly debatable because the widespread use of cryptocurrency does not make it fit into one asset class. So, I want to analyze this topic and analyze the arguments of experts of which they categorized it into which asset class along with its relationship with other markets.

In this highly digitalized world where everything is gone digital and widespread applications of digital technology gives a new dimension to everything than how it is possible that money cannot be dealt with in the digital form. Cryptocurrency is a digital form of currency that is used for billions and millions of transaction but the financial system of the world is so vast that it is important to classified this currency into an asset class so that investors can know more about this and invest in this to promote this because after few years the trade transactions and huge transactions will be through this currency. Therefore, it is important to explore this topic from the perspective of an asset class that is the concern of everyone in the financial world and everyday new interventions in this field make this topic highly debatable.

As far as my personal experience is concerned to this topic is that my family background is related to investors so being a person who belongs to investors it is my core interest to explore more about cryptocurrency’s asset class that will help me to understand the asset class to which it belongs and how it can be used in financial market to get good gains. Therefore, for me, it is important to understand this cryptocurrency from where it started and what day to day new things are revealed about this currency. It is estimated that this currency will change the whole currency system and the way that economies operate. It is important to sense this change in currency and explore more about this.

 

 

 

 

 

 

 

 

 

 

 

 

 

Works Cited Bianchi, Daniele. “Cryptocurrencies As an Asset Class? An Empirical Assessment.” Capital Markets: Asset Pricing & Valuation eJournal 7 (2018): 1-10. cryptimi.com. The Cryptocurrency Asset Class & its Relationship with Other Markets. 2020. 28 February 2020. <https://www.cryptimi.com/guides/cryptocurrency-asset-class-and-its-relationship-with-other-markets>. Dean, Benjamin. “Blockchain Networks Lack Adequate Governance to Protect Against Attacks.” Gale In Context: Opposing Viewpoints, (2020). Gorse, Ross C. Phillips and Denise. “Cryptocurrency price drivers: Wavelet coherence analysis revisited.” PLoS ONE 13.4 (2018). Michael J. Tyrkus, Gale. Cryptocurrency. Michael J. Tyrkus, Gale. 2018.

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