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Bitcoin an Exotic New Asset Class

Bitcoin an Exotic New Asset Class

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Bitcoin represents a difficult categorization effort by traditional financial organizations, resulting in some seeing this exotic new asset class as much as a hybrid of a currency as it is an investment.

The Commodities Future Trading Commission (CFTC) has declared Bitcoin a commodity, the Internal Revenue Service (IRS) has declared Bitcoin to be property, the Securities and Exchange Commission (SEC) polices the Bitcoin market like it’s a security, yet Bitcoin is mainly used as a currency.

Bitcoin was originally designed by Satoshi Nakamoto to be the first cryptographically secure and blockchain-based currency, and is regarded as the first cryptocurrency. Bitcoin is cryptographically secure and not even the most powerful supercomputer can hack it, so no Bitcoin transaction or wallet can be hacked, unless the password of the wallet software is compromised.

Bitcoin can be sent instantly anywhere in the world, making it an excellent choice for international finance. There is no waiting time like there is with banks when sending large amounts of money, and the fees for Bitcoin are usually extremely low. As of September 2018, someone could send as much Bitcoin as they want, whether it be USD 1 or USD 10 billion, for a fee less than USD 1. No fiat payment network in the world can compare to Bitcoin in terms of fee efficiency.

Perhaps most importantly, Bitcoin is decentralized, so transactions and accounts can never be frozen or seized. This is unlike every fiat payment service in the world, which can easily be seized or frozen. Additionally, Bitcoin transactions are immutable, meaning they can’t be reversed, making it safer for merchants than anything else.

Due to Bitcoin’s advantages over fiat currency, in addition to its 99.999% or so uptime over the course of nine years, in addition to global infrastructure and demand, people are buying and holding Bitcoin as an investment since they expect it to gain value relative to fiat long term.

There is one more very important factor when it comes to investment. Bitcoin is decentralized and coded so it can’t be printed at will or manipulated. There is a fixed supply of 21 million Bitcoins once mining is complete, ensuring a lack of money printing, unlike fiat currencies run by central banks which can be printed at will. Central banks have other powerful mechanisms besides money printing to control their fiat’s value, such as interbank interest rate modification and the issuing of debt denominated in their respective fiats.

Central banks have been manipulating their fiat currencies, mostly by issuing debt and money printing, as leverage to balance their national budgets. Bitcoin does not have this problem since it is not run by any individual, entity, or nation. Bitcoin is not being abused to balance budgets, unlike fiat.

Due to this, fiat currencies are experiencing tremendous inflation long term. This makes Bitcoin appear to be an ideal investment choice as a safe harbor to weather the global fiat inflation crisis.

Eventually, perhaps Bitcoin will mature and become the prime global currency, and be used mostly as a currency rather than an investment at that point. But for the foreseeable future, Bitcoin is an exotic asset that is both a currency and an investment, which leaves government regulatory agencies confused and in conflict over how to regulate it.


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