Bitcoin (cryptocurrencies) Emerges as a New Asset Class
No asset has evolved from concept to storing billions of dollars as fast as Bitcoin.
In the 7 years since inception, a robust ecosystem has developed. Retail traders have the infrastructure to drive over $1-B in daily liquidity while professionals can access tailored financial products such as Grayscale’s Bitcoin Investment Trust and TeraExchange’s Bitcoin forwards.
This ample liquidity and opportunity for exposure, or investability, is a Key characteristic of all asset classes and one that Bitcoin exhibits.
Bitcoin also displays a unique politico-economic profile.
Its basis of value, governance, and use cases are clearly differentiated from other asset classes.
For example, the creation of new Bitcoin is governed by a protocol run across a decentralized network of computers whereas fiat(paper) currencies such as USD rely on government-applied monetary policy.
The introduction of new monetary units differs starkly between Bitcoin (lf) and the USD (rt).
Given this unique politico-economic profile, expect Bitcoin’s price to behave differently from other assets since it is driven by distinct market forces.
Bitcoin’s price movements have had near Zero correlation to other asset classes over the last 5 years.
And lastly, Bitcoin’s risk-reward profile can be determined by measuring risk in the form of price volatility Vs. reward in the form of absolute returns.
The governing R/R metric is known as the Sharpe Ratio, it can be compared across asset classes.
Notably, Bitcoin has better compensated investors for the risk they are taking in 3 of the last 5 years, outperforming all other major assets classes.
While a consensus-based cryptocurrency may seem foreign to most investors, it is not surprise that such an asset was born in this increasingly digital and socially networked world.
We here at HeffX-LTN believe Bitcoin (cryptocurrencies) is the 1st , but not the last example of this emerging asset class.
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