Are Crypto Currencies and Crypto Assets for you?
DR. BIRGUL COTELLI,Senior Director, C-suite Program Attendant, Risk & Compliance
Cryptocurrencies are still a niche market and they come with some operational risks. According to PWC, examples of operational risks include unauthorized transactional activities for instances due to DAO breaches or hacks, inaccurate or incomplete books and records, digital asset holdings that do not reconcile to your custodian and/or the respective blockchain.
PWC therefore invites you to consider 6 core questions when investing into crypto assets. This includes due diiigence on technology, custody and security, market access in times of market turmoil, meintaining liquidity and data, confidentiality and privacy as well as compliance and tax issues. In contrast to a secondary market traditional stock exchange all this work is for you to do.
Another question is how liquid should the market be in which you invest. Liquidity insures that you can always buy and sell with low spreads between buying and selling price and it also helps establish a market price, so you o not have to worry so much about valuation. In the crypto currency and crypto asset market this is different. You have to do your own due diligence and your own valuation for the assets available in cryptographic form.
Most of them trade with low volumes and have a small market capitalization. If you go to CoinMarketCap you can see the entire market capitalization of crypto and you will find out that it makes sense to focus on the 10-20 cryptos with the highest market capitalization to have some liquidity when you want to sell your assets.
The number of available cryptocurrencies worldwide as of July 2023 is huge, there were 9,875 different cryptocurrencies and crypto assets listed, according to investing.com. Bitcoin leads the ranking
as the largest virtual currencies by market capitalization, ahead of Ethereum. The market capitalisation of the oldest cryptocurrency is currently around $604.0 billion. In comparison to UBS which has a market capitalization as of today of $68.45 Billion. So bitcoin is round about 9 times UBS MARKET VALUE which for a global market is still small.
And Bitcoin is just a cryptocurrency. Thereare no smart contracts and no way to use them as a cryptoasset with a business model behind it. Also cyryptomarkets are very volatile (apart from stable coins). Bitcoin for instance. reached its current all-time high in market capitalization on 8 November 2021, when the market capitalization of the oldest and most important cryptocurrency had stood at $1,274.8 billion.
Bitcoin’s market capitalization alone accounted for more than 50 per cent of the entire crypto market capitalization Now the market cap has halved along with the crypto market. Therefore cryptocurrencies and crypto assets are just an admixture to classical investments, given their volatility. Also the argument that they provide uncorrelated beta to traditional capital markets did not hold true during the past two years, they were moving down with the NASDQ INDEX. Some investors have used cryptocurrencies AND CRYPTO ASSETS to ring fence themselves from bear markets. However in the current bear market Bitcoin and other cryptocurrencies and-assets have developed a high correlation to the NASDAQ.