Title: Bitcoin as an Asset Class - Deribit Insights
Headings: Bitcoin as an Asset Class
Bitcoin as an Asset Class
Classifying digital assets is challenging
What is an Asset Class, Anyway?
Capital Assets
Consumable/Transformable Assets
Store of Value Assets
Traditional Assets offer Limited Diversification
Bitcoin – The new “Digital Gold”
What’s so “Alternative” About Alternatives?
The Alternative Asset Market
Digital Assets as a Separate Asset Class
How Traditional Market Factors influence Bitcoin
Factors that Drive Digital Asset Markets
Bitcoin – An Alternative Asset with High Liquidity
Conclusion
Su Zhu
Matt Dibb
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Content: A lot has changed since the early days of cryptocurrency. Increasing financialization through derivatives such as futures, options as well as ETPs and lending has led to further participation from institutional investors and professional traders. Bitcoin’s volatility has thus been trending down ever since it peaked in 2011 and institutional demand has increased substantially, with CME’s futures surpassing $100 bn in total notional value traded since their launch in December 2017. Classifying digital assets is challenging
Although almost $170 bn is stored in Bitcoin, many investors struggle to understand whether Bitcoin is a currency, a commodity, a stake in innovative technology or a different asset altogether. Navigating the regulatory thicket is not an easy endeavor either. In 2019, the US securities and exchange commission (SEC) has released a 13-page framework for determining whether a digital asset falls under securities law and thus be registered with the SEC. According to this framework, Bitcoin is not considered a security, although some digital assets might be. Other government agencies, such as the Commodities and Futures Trading Commission (CFTC) label Bitcoin as a commodity, while the IRS classifies cryptocurrencies not as cash but property, thus making all digital assets taxable. Therefore, it is not surprising that there is significant confusion – even among professionals – as to which asset class Bitcoin belongs. A survey conducted by Bitwise (Source) showed that more than 40% of financial advisors in the US would not fund an allocation to digital assets from alternatives, but instead would decrease cash or draw from the allocation set aside for equities, commodities or fixed income.