In our previous discussion, we introduced cryptocurrency and explored how it differs from traditional forms of money.
Beyond serving as a novel form of "digital money" for purchasing goods and services, cryptocurrencies are increasingly used as financial assets that people trade or invest in.
The traditional finance ("TradFi") sector remains divided on whether cryptocurrencies should be considered "financial assets."
A common argument is that cryptocurrencies can't be valued because they don't generate earnings or pay dividends—but similar criticisms apply to established financial assets like gold and other commodities.
We firmly believe that cryptocurrency is a financial asset. More broadly, we view it as an entirely new asset class. (Though it must be acknowledged that it remains a highly speculative one at present.)
Even U.S. Federal Reserve Chair Jerome Powell has stated: “People use Bitcoin as a speculative asset. It’s like gold, but it’s virtual, it’s digital.”
An asset class is a group of investments that share similar characteristics and behaviors, such as stocks, bonds, commodities, real estate, and cash (fiat currencies).
And now, entering the stage… cryptocurrency!
Cryptocurrency represents the first genuinely new asset class to emerge in decades. 🤯
Most cryptocurrencies aren't just used as a payment method—like buying a meal at a restaurant. They are also used for speculative trading or held as investments by those anticipating their value will rise over time.
Similar to the financial market for fiat currencies—the foreign exchange (Forex) market—there is now a crypto market. This is the financial marketplace for cryptocurrencies, where both traders and investors can seek profits.
But while the Forex market operates 24 hours a day, 5.5 days a week, the cryptocurrency market runs 24 hours a day, 7 days a week. It never closes!
Traders place bets ("speculate") on short-term price movements, while investors buy and hold, hoping specific cryptocurrencies will achieve broader adoption and appreciate in value over the long term.
Investing in cryptocurrencies can help investors diversify their portfolios. More experienced crypto investors can even generate passive income from their holdings of certain cryptocurrencies.
Because cryptocurrencies are financial assets that can be invested in or traded, they are also often referred to as "digital assets," "crypto assets," or simply "crypto."
Examples of Cryptocurrencies
The first cryptocurrency was Bitcoin, which remains the largest and most well-known.
Beyond Bitcoin, there are many other prominent cryptocurrencies, such as Ethereum (ETH), XRP, Cardano (ADA), Solana (SOL), Dogecoin (DOGE), Polkadot (DOT), Litecoin (LTC), and Cosmos (ATOM), among others.
Some are similar to Bitcoin. Others are built on different technologies or possess new features that make them fundamentally different.
The term "cryptocurrency" is actually somewhat misleading because, unlike Bitcoin, most cryptocurrencies do not function well as actual currencies.
Today, thousands of cryptocurrencies exist. Each aims to offer more advanced or refined features than earlier versions or serves entirely different purposes and use cases.
Unfortunately, many of these are useless—or worse, outright scams. Yet, people continue to buy them.
Newcomers to crypto often hear claims like, "This one coin will change the world—no, the galaxy!"
They think, "I must buy this Galatacoin!"
They purchase questionable tokens without understanding the underlying technology, often losing their money in the process when the cryptocurrency ultimately becomes worthless.
Some people enter the crypto space with the wrong mindset. They believe it's a guaranteed bet… that any money they put in will automatically grow.
With this mentality, it's no surprise that scammers and speculators view today's crypto market like a tiger eyeing a herd of one-legged deer.
So many tasty opportunities.
Don't be the one-legged deer.
This is our mission…
“Don’t be the one-legged deer.”
Who are we to say this?
Understanding Crypto as an Asset Class
Cryptocurrencies exhibit unique properties that justify their classification as a distinct asset class. Unlike traditional assets, they are decentralized, global, and operate on a technology-driven infrastructure immune to many traditional financial system controls.
Their value is derived from a combination of factors including utility, scarcity, network adoption, and market sentiment—a blend that differs significantly from how stocks or bonds are valued.
For those looking to deepen their understanding of this new frontier, explore more strategies for navigating the crypto markets effectively.
How Crypto Complements Traditional Portfolios
Incorporating a small allocation of cryptocurrencies into a diversified investment portfolio can potentially enhance returns and reduce overall correlation risk. Because crypto markets often move independently of traditional stock and bond markets, they can provide a hedge against inflation and geopolitical uncertainty.
However, this diversification benefit comes with increased volatility, making position sizing and risk management absolutely critical.
Frequently Asked Questions
What exactly defines an asset class?
An asset class is a group of investments that share similar financial characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. Cryptocurrencies share common technological foundations and market behaviors, supporting their case as a new class.
How is the value of a cryptocurrency determined?
Unlike companies valued on earnings, a cryptocurrency's value is primarily driven by supply and demand dynamics, its utility within its native network (e.g., paying for transaction fees), its scarcity (like Bitcoin's capped supply), and broader market adoption and sentiment.
Is investing in cryptocurrency the same as trading it?
No. Investing typically implies a longer-term "buy and hold" strategy based on the belief in the asset's future value and utility. Trading involves seeking to profit from shorter-term price fluctuations through more frequent buying and selling. View real-time tools that can assist with both approaches.
What are the biggest risks of crypto as an asset class?
The primary risks include extreme price volatility, regulatory uncertainty across different countries, the potential for project failure or scams, technological vulnerabilities (like smart contract bugs), and security risks related to hacking of exchanges or personal wallets.
Can cryptocurrency generate passive income?
Yes, through mechanisms like "staking" (where you lock up coins to help secure a network and earn rewards) or providing liquidity to decentralized finance (DeFi) protocols. However, these activities carry their own risks, including potential loss of principal.
How do I start building a diversified crypto portfolio?
Start by educating yourself on different types of assets (e.g., Bitcoin, major "altcoins," DeFi tokens). Consider investing first in larger, more established cryptocurrencies before allocating smaller amounts to higher-risk projects. Always prioritize secure storage solutions, like hardware wallets.