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Last summer executives from Ark Invest and Coinbase released a paper called “Bitcoin: Ringing the Bell for a New Asset Class,” which defines the cryptocurrency as a new asset class for the 21st century. The paper written by Ark Invest’s Chris Burniske and Coinbase Vice President Adam White has recently been updated to reflect 2016’s end of the year data.
Ark Invest Continues to Explore Bitcoin as the Uncorrelated Asset Class of the 21st Century
Ark Invest and the San Francisco startup Coinbase have brought their latest bitcoin report up to date with all kinds of new data. The paper’s authors believe bitcoin is a “first of its kind” type of investment with significant distinctions from traditional assets. Burniske and White explore four criteria within traditional asset classes and use economist Robert Greer’s studies as the reports reference for asset classification.
The newly refined report discusses bitcoin amongst traditional assets such as equities, bonds, real estate, precious metals, physical commodities, fine art, and currencies. The four specifications defined in context with cryptocurrency and traditional assets are investability, politico-economics, correlation of returns: price independence, and risk-reward profile. The first section of the report describes bitcoin investability.
“ARK Invest and Coinbase define investability as providing ample liquidity and opportunity to invest,” explains the research paper. “Globally, bitcoin exchange traded volumes are a good measure of the liquidity available to investors.— Daily volumes have been increasing steadily, and averaged over $1.5 billion in 2016. During the month of December 2016, average exchange traded volumes were more than $4 billion per day.”
Various Interesting Factoids from Ark Invest’s Report
Some new and interesting findings from the updated paper reveal that as of January 2017 Coinbase has stored over a $1 billion USD worth of bitcoin. Ark Invest and Coinbase estimate that more than ten million global citizens hold a portion of bitcoin. As the nascent industry matures the paper’s authors expect these numbers should swell in the future.
The paper also explains that trading volume achieved billion dollar daily numbers, bitcoin’s transaction volume has “topped as much as $0.5 billion in one day—and is now consistently north of $200 million daily,” explains Ark Invest. Alongside this, the paper details transactional volume during 2014 through 2016 has seen significant year-over-year growth showing bitcoin’s increased demand.
When looking at bitcoin’s correlation of returns or price independence, the paper says the cryptocurrency has significant contrasts to traditional asset classes throughout the past six years. “Bitcoin is the only asset that maintains consistently low correlations with every other asset,” says the research paper.
Lastly, as far as risk and rewards are concerned, the paper explains bitcoin is less volatile than its early days. However, amongst the traditional assets measured within the report the cryptocurrency has the most volatility the paper explains:
While bitcoin’s volatility has dropped considerably, it is still the most volatile of the broad asset classes over all the periods of this analysis. However, that may not remain the case for long since over the last year bitcoin was slightly more volatile than oil.
A Unique Asset Class
As reported in the paper a few months ago Ark Invest and Coinbase believe bitcoin is on its way to being a recognized asset class. The paper details that cryptocurrencies have various network effects and significant distinctions compared to other assets. The report is well researched with data from Coinbase, GDAX, other global bitcoin exchanges with various comparisons to conventional assets like gold.
The paper’s data clearly shows the bitcoin economy is increasingly growing larger heading into 2017. The media’s headlines this year calling bitcoin a new safe haven investment make more sense when compared to the report’s new statistics.
What do you think about bitcoin as a new type of asset class? Let us know in the comments below.
Images via Shutterstock, and Ark Invest’s report figures.
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