In a recent Salt Talk, Cathie Wood of Ark Investment, called Cryptocurrencies the emergence of the first new asset class since the 1600s’ when Equities made their debut. She was, of course, talking about specifically Bitcoin, generically cryptocurrencies and very broadly blockchain.
While not indulging in the technicalities or indeed (de)merits of investing in, it is an important part of the investing landscape and therefore needs a study. In mainstream reporting, Bitcoin usage was known for transactions on nefarious sites like Silk Road (now closed down).
Since it’s hay days in 2012-13, crypto use has evolved both as an investment as well as, surprisingly, for mainstream transactions by a significant proportion of population in certain countries. Cheap to transact, easy to store, even easier to carry, we have seen digital currencies gain significantly in the last one year.
Volatile investment
Elon Musk has been on either side of the discussion – first as the messiah of Dogecoin and later Bitcoin with Tesla trumping up more than a billion dollars to create a reserve. Both Cathie and Elon touted green potential of the cryptocurrency universe and crypto-marquee Bitcoin topped $64,106 on the April 14 2021 on widespread institutional buying. About a month later, Ethereum (of Crypto and NFT – non-fungible token fame) topped out at $4305. In the middle of all this, Coinbase, a platform that makes it easy to buy, sell, and store cryptocurrency listed but has since lost just under a third of its value from the listing high.
Similarly, Crypto heavyweights $BTC (Bitcoin) and Ethereum are currently trading at $38,192 and $2,418 at the time this article was being written, shedding more than 40% each on the back of Musk’s tweets and an impending Chinese crackdown. Still, regular and stablecoin (pegged to fiat currencies like the US Dollar) are collectively worth $1.5 Trillion, not a trifling sum which, to compare is more than the GDP of the 13th largest economy.
Tailored to a post-USD world
According to a recent write up by Ji Bianco of Bianco Research, we are beginning to see the emergence of a mainstream, decentralised financial system along with a directional move away from the US Dollar or local fiat currencies. He quotes “A 2020 global consumer survey by Statista found cryptocurrencies are owned or used by 6.2% of US citizens, 5.2% in Germany, and 4.7% in the UK. But in countries with many unbanked or confiscatory lending and inadequate protections, the percentages jump. In Nigeria, 32% owned or use cryptos, 21% in Vietnam, the Philippines is 20%, Turkey is 16%, and Indonesia is 13%”.
Most of it completely out of control of financial institutions, or even central banks. What we have here is the emergence of an alternative mode of transaction which is universal, quick and sometimes not volatile (in the case of stablecoin).
Add to that the institutional participation, at least globally, cryptocurrencies are here to stay. As an investment, large ones will continue to be volatile as the world grinds its way through the pandemic.
A Regulator’s bane
Does this mean we will see widespread adoption soon, universally? Probably not. Chinese, Indian, Russian, and Nigerian regulators have unsuccessfully attempted a ban and continue to frown upon crypto transactions. Investors in countries like India will factor this in before planning crypto trades. Who will be the winner? Mostly the entire asset class as it lends itself well to the high speed, privacy and security focused transaction requirements, one which will include Bitcoin, stablecoin and central bank-issued cryptocurrencies.