Cryptocurrency only emerged as a potential asset class in the last five years. It would have been amusing for a financial advisor to refer to cryptocurrencies as such until then. Cryptocurrency has seen a massive rise in popularity despite its complex background, both as a gamble and as a typical appreciating asset. Jason Simon, an expert in the crypto world, explains why the future could see cryptocurrencies being considered an asset class.
Many sectors of the cryptocurrency industry have seen significant investment from influencers, investors and high-net worth financial service providers in recent years. Banks and other financial institutions were reluctant to invest in cryptocurrency until recently due to its mysterious and hidden appeal.
Despite all the hype surrounding cryptocurrency, financial institutions have remained away from them and the more trusted ones are still avoiding them. When you consider the volatility of cryptocurrency and their lack of central authority, it is easy to understand why there is negative sentiment. Potential investors don’t trust cryptocurrencies because they lack centralizing authority or intermediary power, which is paradoxically a negative aspect of a technology that seeks to reduce the role the middleman.
Other concerns about cryptocurrencies also stem from their potential to facilitate illegal financial activity and their unreliable relationship to standard economic fundamentals. Central banks in several countries, including India, are skeptical about their mode of operation, given their decentralized nature. The fear of these central organizations regarding cryptocurrencies is based on their potential goose laundering.
“The Asia-Pacific Region (APAC) has seen efforts to pave the way for the growth and development of cryptocurrency as an asset class and its incorporation into everyday markets,” explains Simon. “This trend of inclusion that is rarely seen in the technology spheres indicates a strong interest and willingness to participate in the cryptocurrency game by both individual and institutional investors.”
However, interest in cryptocurrency has not grown overnight. Alternative payment methods have been a boon for cryptocurrency in the APAC region. China has, for instance, banned Bitcoin (BTC), despite the fact that almost 60% of all Bitcoin mining takes place in China. India was also affected.
These countries’ aggressive moves have become more logical now that they have their own digital currencies. China is one example of a country that has launched its own digital currency. The existence of private cryptocurrency is a potential threat to the adoption and implementation of these currencies. As such, they are regularly removed from the market.
“Central banks around the world are taking small steps to combat the growth of private cryptocurrencies,” notes Simon. “For example, 80% of the world’s central banks have begun investigating the use of digital currencies, with strong support from the International Monetary Fund. Currency mining by banks will pose a significant threat to currencies such as BTC and Ethereum. Both rely on a high-demand, low-supply model to keep prices high.”
Overall, the future of private currencies looks quite bright. Specifically, this can be said of the underlying blockchain technology they use to operate. There is an increased need for technological talent in blockchain implementation, which may increase employment rates of highly skilled personnel.
High-profile players such as the European Commission are also looking to fully legitimize cryptocurrencies with regulations. Positive sentiments from financial experts and players in the digital finance world support the dynamic growth of cryptocurrencies as an asset class.