Bitcoin and ethereum are still drops in the ocean of financial markets

Economists have quite a strict definition of what can be labelled “money” or “currency”. It must combine four attributes – it must be a medium of exchange, it should serve as a unit of account, it has to be able to store value and it must be legal tender.

At the moment, bitcoin and other cryptocurrencies meet none of these criteria. First, none have become a broadly accepted means of payment. Second, apart from crypto exchanges, only a handful of exchanges refer to value in bitcoin. Third, according to coindesk.com data, bitcoin price swings make it hard to consider it a stable store of value and lastly, it is not legal tender. Therefore, we prefer the term crypto assets.

According to our research, the total market capitalisation of the crypto space is currently around US$324 billion compared to US$10.5 billion in 2014. The bulk of the growth has been over the past year, with aggregate market capitalisation surging more than 2,500 per cent. Bitcoin, ethereum, ripple, bitcoin cash and litecoin make up over 70 per cent of the market. However, the market capitalisation is still smaller than traditional assets classes such as global equities (over US$80 trillion) and global bond markets (over US$100 trillion).

While several financial products have been developed around the crypto asset class, including investment funds, derivatives and alternative investment vehicles, the total assets under management is a relatively small US$2 billion to US$3 billion. The average daily traded value of bitcoin futures on the Chicago Board Options Exchange and Chicago Mercantile Exchange has been around US$150 million since inception in December 2017.