ETConclave – Is it necessary to take cryptocurrency seriously as an asset class?

ETConclave on cryptocurrency examines the recognition and definition of crypto as an asset class in an interview with Avinash Shekhar, CEO of ZebPay, and Joel John, head of Ledger Prime. Crypto assets have long been called asset classes. An asset class is a financial instrument that usually has similar financial characteristics. However, do cryptocurrencies fall into this category and if so, how?

Cryptomens as an asset class

Avinash believes that cryptocurrencies have all the attributes of an emerging asset class. Attributes include maintaining value in space and time for years and some legitimate use cases. He believes that the use of cryptocurrencies could be even larger than the Internet, which comes into play in the next stages of the digital revolution. Another important feature of this asset class is volatility, which is an integral feature of every growing asset class, as was previously the case for oil. He believes that the volatility of virtual assets would decrease as they become more stable. At the same time, it confirms that price volatility will not decrease due to increasing financial literacy among cryptocurrency enthusiasts and the consequent increase in buyers and cryptomen traders over the last 5 years. Fear of omissions (FOMO) has also declined in the past and will continue as cryptocurrency users mature.

However, Avinash sees no link between volatility and the decentralized nature of cryptocurrencies. It stands firmly behind the largely decentralized nature of cryptocurrencies, where users use power and define the rules that make cryptocurrency the most sought-after and unique class of assets. He believes that a truly decentralized system reduces the chances of manipulation and abuse. The novelty of this asset class with a 24×7 trading regime also makes it an attractive option.

Joel also believes that the speculative nature of the asset comes from its nascent phase. However, he thinks that this decentralized asset has a self-regulated market, as is evident from various countries, such as Dubai, the USA, which have a clear set of regulations, and even India is constantly working on it.

Sumit Ghosh, co-founder and CEO of Chingari, says:
“People over the last few years have shown tremendous confidence in cryptocurrencies. One of the main things people invest in cryptocurrencies is that people are looking for better returns. Given the current market capitalization of bitcoin, which is more than $ 850 billion, it is clear that it is well on its way to overtaking global technology powers such as Microsoft in the near future. “

How speculative is the crypto asset and what changes trigger volatility?

Joel explains this with three arguments. First, every new technology is going through a phase of rapid speculation, whether it’s shipping routes or the Internet in pursuit of growth and adventure. Second, in India, where their access is regulated, cryptocurrencies are viewed with curiosity and as a source of viable income. Third, it could also be due to bitcoin that mimics stocks and currencies. However, ongoing speculation about cryptocurrencies despite the bastion of bitcoin could be due to its perceived image as a gambling asset, a furious search for economic opportunities and widespread internet availability. All this requires financial literacy of the people.

Concentration of cryptoactive assets with first investors can lead to a fall in price if they liquidate their holdings

Joel believes that crypto assets are concentrated in the hands of the first investors and have made them richer as they have earned rich dividends from the exponential rise in the price of cryptocurrencies in the coming years. Their risky appetite also helped them to hold it for a long time. In such a scenario, the sale of large quantities of cryptocurrencies by these whales would have a slight impact on the market and, in terms of liquidity, the market would be quickly absorbed.

Basis for the classification of cryptocurrencies as asset classes

Is cryptocurrency a peer-to-peer electronic money system or a means of obtaining short-term profits or a new decentralized blockchain technology with use cases? Can it be classified as an asset class? Avinash calls cryptomens a great class of assets, where bitcoin and ethereum serve as a store of value and a storehouse of use cases. These will continue to grow and have reached their maturity. In particular, Bitcoin has become an asset class thanks to people looking for long-term profits rather than speculative trading. The decentralized network, which is itself a revolutionary entity that can soon overtake social networks and other platforms, cannot be missing either.

The idea of ​​decentralization and cryptocurrencies as asset classes

Avinash emphasized the fact that decentralized finance (DeFi) is an integral part of the cryptoecosystem and that cryptocurrencies are needed to facilitate DeFi transactions. For example, in a DeFi Compound network, a composite cryptotoken token is built on the blockchain of other cryptocurrencies. Other uses of NFT crypto, DeFi lending and borrowing, Dapps and other blockchain products, which are different parts, come from the same crypto ecosystem.

Can the mass adoption of cryptocurrencies as asset classes take place worldwide?

The rapid growth of cryptocurrencies suggests further acceptance, but not without certain obstacles. At the outset, Joel states that the first wave of change has already taken place. He justifies the necessary and imminent rapid expansion and acceptance of cryptocurrencies by quoting today’s irreplaceable household items, such as refrigerators, televisions and the Internet, which were also revolutionary, modern and upstream when they were invented. Massive acceptance of cryptocurrencies would mean many crypto transactions without the purchase of tokens and the use of crypto ATMs. It would mean much more and beyond how the transformation of communication technologies and social media through metaverse, games, web 3.0, regional innovations. He believes that the change will come within 2 years and will bring many younger people.

TIL does not warrant, guarantee or necessarily endorse any of the above content, nor is it in any way responsible for it. The article does not constitute investment advice. Take all necessary steps to ensure that all information and content provided is correct, updated and verified.

Crypto products and NFTs are unregulated and can be high risk. There may be no regulatory remedy for losses from such transactions.

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