What is a cryptoasset?

Digital assets, particularly cryptoassets, have gained significant traction in the financial industry and have become increasingly popular among retail investors. These assets, such as Bitcoin and Ethereum, have experienced a surge in adoption over the past few years. Major developments include public companies adding cryptoassets to their balance sheets, traditional financial institutions offering crypto-related products to their customers, and retail investors actively participating in crypto trading on various exchanges.

The inception of Bitcoin in 2009 was a response to the global financial crisis of 2008. Its primary aim was to address the issue of monetary debasement faced by fiat currencies controlled by central banks. As a groundbreaking solution, Bitcoin introduced a fixed supply of 21 million coins, making it immune to manipulation by any entity or individual. Additionally, it successfully solved the double-spending problem through the implementation of blockchain technology, eliminating the need for intermediaries like banks to prevent fraudulent transactions.

Despite the rise of thousands of other cryptoassets since Bitcoin's creation, blockchain technology's primary application remains focused on the use of cryptoassets. Companies have invested substantial amounts in exploring new ways to leverage blockchain technology, but cryptoassets continue to dominate the scene.

Institutional interest in crypto markets has skyrocketed over the past two years, with notable billionaires like Paul Tudor Jones, Bill Miller, and Stanley Drunkenmiller publicly expressing their positive outlook on Bitcoin.

Established companies such as Tesla, Microstrategy, Block (formerly Square), and SpaceX have also added Bitcoin to their reserve assets. Notably, Microstrategy holds approximately 114,042 Bitcoin (equivalent to $2.406 billion), while Tesla holds about $1.83 billion in Bitcoin, as per their 2021 Q3 filings. Moreover, legacy financial institutions have met the growing demand from their wealth management clients by introducing various crypto-related products, such as shares of the Grayscale Bitcoin Trust, crypto-related funds, and recently approved Bitcoin futures ETF.

Long story short, today when we talk about the available digital assets on the market, we could broadly categorise them into the following groups: Cryptoassets: These are assets native to Layer 1 public blockchain protocols that drive network incentives, process transactions, and maintain security. Examples include Bitcoin (BTC), Ethereum (ETH), EOS and Algorand (ALGO).

Security Tokens: These tokens represent ownership interests in underlying security instruments. This category alone would deserve an entire article as recently the SEC in the US labeled as Security Tokens a number of tokens that were previously understood to be Utility Tokens instead.

Utility Tokens: Tokens issued on top of public blockchains for governance and to access features within middleware and decentralized applications.

Stablecoins: These are asset-backed tokens issued on public and private blockchains, representing ownership interests in underlying stable assets like fiat currency and precious metals. Examples include USDT and USDC.

CBDCs: Central Bank Digital Currencies issued by central banks in wholesale or retail models, often utilizing permissioned blockchain or distributed ledger technology (DLT). Examples include Digital Yuan (China) and Digital SandDollar (Bahamas).

Meme Coins: are Community-Driven Tokens that have gained popularity and attention primarily due to their association with internet memes, influential social media communities, and viral trends. Some examples are $FLOKI and $LADYS.

The emergence of various types of digital assets, coupled with increasing institutional interest and investments, has propelled the industry into the mainstream, making it a key area of focus for investors, businesses, and financial institutions alike.