Bitcoin, litecoin, monero, dash, and zcash fulfill the three definitions of a currency: serving as a means of exchange, store of value, and unit of account. Crypto Commodities include Ethereum, storj, and golem. Meanwhile, there are many crypto tokens for end user-specific applications such as augur, uniswap, and chainlink.
What is an asset class anyway?
An asset class is a set of assets that bear some fundamental economic similarities and have characteristics that make them distinct from other assets that are not part of that class.
Three superclasses of assets
- Capital assets: Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art.
- Consumable/transformable assets: The Consumable/Transformable super asset class can be defined as assets that can be consumed, transformed, and have economic value but do not generate an economic income stream. These are your typical physical commodities such as soft commodities, energy, precious metals, and industrial metals.
- Store of value assets: A store of value is an asset, commodity, or currency that maintains its value without depreciating. A store of value is essentially an asset, commodity, or currency that can be saved, retrieved, and exchanged in the future without deteriorating in value. In other words, to enter this category, the item acquired should, over time, either be worth the same or more.
Cryptoassets most obviously fall into the consumable / Transformable realm because they have utility and are consumed digitally. For example, developers use ether to gain access to Ethereum’s world computer, which then can perform operations on smart contracts stored in the Ethereum blockchain. Crypto assets are a class that falls between the consumable/transformable and store of value superclass.
Key differentiators between asset classes
In economic characteristics, the main differences come down to governance, supply schedule, use cases, the basis of value. Asset classes differ in their marketplace behavior, the most important of which include risk, reward, and correlation with other assets.
Cryptoassets are best described as an emerging class. Their economic characteristics of governance, supply schedule, use cases, and basis of value are relatively fixed from the genesis of any particular crypto asset. The liquidity profile and marketplace characteristics will change more over time as these assets mature.
How are they governed?
Governance: Governance is how an organization allocates responsibility for and makes decisions about asset management-related projects, tasks, actions, and issues.
Supply schedule: A supply schedule is an economic graph that depicts how the number of goods or services in the market relates to the price of those goods or services.
Cryptoassets, like gold, are often constructed to be scarce in their supply. Many will be even more scarce than gold and other precious metals. The supply schedule of crypto assets is typically metered mathematically and set in code at the genesis of the underlying protocol or distributed application.
How are they used
Governance and supply schedules play an essential role in the use cases of an asset. For equities and bonds, the use cases are straightforward. Equities allow a company to raise capital via the issuance of debt. Currencies are clear cut in their use cases, serving as a means of exchange, store of value, and unit of account.
Equities allow a company to raise capital from the capital markets via the issuance of shares, while bonds enable a company to raise money via debt issuance.
What is the basis of value?
Utility value: utility value refers to what the underlying blockchain is used for and therefore what the demand is for its asset.
Speculative value: speculative value is driven by people trying to predict how widely used a particular crypto asset will be in the future. crypto assets can derive much of the speculative value from the development team. People will believe that a crypto asset will be widely adopted if a talented and focused development team crafts it.
Speculative value in young markets is hard to estimate. It can be dangerous to play with, as often only a few investors have a sound basis for the asset’s future value, while the rest follow the movement of the market.