Will crypto qualify as an asset class in the future?
Cryptocurrency has emerged as a potential asset class only in the last five years. It would have been amusing to a financial advisor to even refer to crypto as one until then. Crypto has seen a massive uptick in popularity despite its complex background, both as a gamble and as a typical, appreciating asset. Over the last few years, various sectors of the crypto industry have attracted hefty investments from wealthy investors, influential individuals, and financial service providers.
Until recently, banks and other financial institutions were highly reluctant to invest in crypto because of the hidden and mysterious appeal of such a dynamic asset class. Despite the global hype, financial providers had stayed clear of crypto, and for the most part, the most reputable ones still are. The negative sentiment regarding cryptocurrencies is understandable when their high volatility and lack of centralized authority are considered. Paradoxically, a technology that aims to reduce the role of the middleman is devaluing itself to potential investors who do not trust it due to the lack of a middleman or a centralizing authority.
Other concerns regarding cryptocurrencies also arise from their potential for facilitating illegal financial activity and their unreliable relationship with standard economic fundamentals. Central banks in various countries, including India, are skeptical about its modus operandi, considering its decentralized nature. The fear in these central organizations regarding cryptocurrency is based on their potential whitewash by the golden goose.
The Asia Pacific region (APAC) has seen efforts to pave the way for the growth and development of cryptocurrency as an asset class and their incorporation into everyday markets. This trend of inclusivity that is seldom seen in technological spheres signals a strong interest and willingness to play in the crypto game by individual and institutional investors alike. The growth in the interest around cryptocurrency, however, did not happen overnight. The incorporation of alternative payment methods in the APAC region has been good for crypto. China, for instance, had banned Bitcoin (BTC) in 2017, even though a large number (almost 60%) of all the Bitcoin mining happens in China. The same has also been seen in the case of India.
The aggressive move by such nations has started to make more sense now that these countries have launched their own digital currencies. China, for example, is launching its own, centralized digital currency. On the face of it, the existence of private crypto coins poses a threat to the implementation and adoption of these coins, and hence, they’re being systematically removed from the picture.
Around the world, central banks are taking small steps to fight back against the growth of private crypto coins. For instance, 80% of central banks worldwide have started looking into the use of digital currencies, with firm backing by the International Monetary Fund. The exploration of currencies by banks will pose a significant threat to currencies like Bitcoin (BTC) and Ethereum (ETH), which rely on a high-demand, low-supply model to keep prices high.
All in all, the future for private coins does look somewhat bright. More accurately, this can be said for the underlying blockchain technology that they’re using to function. There is an increased need for technological and technical talent in the implementation of the blockchain, which can increase employment rates for highly skilled staff. Prominent players like the European Commission are also looking to completely legitimize cryptocurrencies with regulations. Positive sentiments by financial experts and players in the digital finance world are supportive of the dynamic growth of crypto as an asset class.