The market for cryptocurrencies reached 5 billion US dollars in the year 2015. The market rose to 130 billion US dollars in 2017. The most prominent cryptocurrency was Bitcoin. Also in the year 2017, coins such as Bitcoin Cash, Ripple, Ethereum, Litecoin, IOTA, NEM NEO, Dash, and Ethereum Classic all reached a market capitalization of more than 1 billion US dollars.

In the year 2017, cryptocurrencies showed a negative correlation with US stocks, US bonds and oil, and is suitable for hedging price movements in asset classes that are established. This relationship means that when the stock market goes up, then most of the cryptocurrencies would go downward. Also vice versa; If the stock markets drops, then the cryptocurrencies market would go upwards.

Some of the asset classes are: stocks, cash equivalents, bonds, foreign exchange, commodities and real estate. The new emerging class would be cryptocurrencies.

Here is a table of asset classes (Reference: Thomas Ankenbrand and Denis Bieri (2018)):

The largest market cryptocurrency capitalization in August 2017 is made of of the five largest cryptocurrencies such as: Ethereum, Ripple, Bitcoin, Bitcoin Cash, and Litecoin. These major currencies made up 80 percent of the total market capitalization.

A quote from Thomas Ankenbrand and Denis Bieri (2018): “It’s (cryptocurrencies) low correlation to stocks, bonds, commodities, and foreign exchange induces a diversification potential for investors. Hence, an expansion of the traditional asset universe by cryptocurrencies implies a superior risk-adjusted performance measured by the Sharpe ratio, even if only a small share of the total portfolio allocation is invested into the cryptocurrency market. Investors also do not need to pick specific cryptocurrencies, since an index fund or an ETF that does not need active management is suitable in order to benefit from the performance characteristics of the cryptocurrency market.”

citation:

Thomas Ankenbrand and Denis Bieri (2018). Assessment of cryptocurrencies as an asset class by their characteristics. Investment Management and Financial Innovations, 15(3), 169-181. doi:10.21511/imfi.15(3).2018.14