Cryptocurrency: Money or Asset or both?
By GITTEL AYUK Esq.
Introduction
Cryptocurrency is best known by many as a digital currency. But is cryptocurrency Money? Different people including banks, academicians, Crypto enthusiast, economists and government agencies hold quite opposing views of what cryptocurrency really represents. To some, Cryptocurrency is money; to others an assert or security. In this article, we shall analyse these different views i.e., whether cryptocurrency is money or an asset or both money and an asset. To this effect, we shall examine some underlying concepts such as Money, Assets, Cryptocurrency as Money and Cryptocurrency as Assets.
Money
Money is a basically a store of value, a unit of account and a means of exchange. With money, goods and services can be bought, values stored and transferred as well as accounts of income and spending being kept. Money has gone through diverse evolutions expresses in different forms such as shells, metal, coins, paper and arguably cryptocurrency[1]. Some characteristics of money are its durability, acceptabity, profitability, divisibility, uniformity and a limited supply.[2]
[1] Ashu Billy Manners, 10/03/2022, Cryptocurrency Investment in Africa: What Challenges, Midas Law Group, Available at, https://midaslg.com/2022/03/10/cryptocurrency-investment-in-africa-what-challenges/.
[2] The Federal Reserve Bank of St Louis, Functions of Money – The Economic Lowdown Podcast Series, Available at, Functions of Money, Economic Lowdown Podcasts | Education | St. Louis Fed (stlouisfed.org)
Assets
“An asset is a store of value, over which ownership rights are enforced and from which their owners may derive economic benefits by holding or using them over a period of time”.[1] Assets exist is classes. An asset class in simple terms is an investment vehicle. That is, a pull of different investments having similar characteristics and are prone to the same regulation. There are different types of assets classes. But, the conventionally accepted asset classes include Stocks, fixed income assets, cash or its equivalents and real assets.[2]
[1] Mr. Jose M Cartas and Artak Harutyunyan , Classification of Financial Assets and Liabilities, International Monetary Fund, 4. Classification of Financial Assets and Liabilities in: Monetary and Financial Statistics Manual and Compilation Guide (imf.org)
[2] Corporate Finance Institute, What is an Asset Class, Available at, https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/asset-class/.
Stocks
Stocks or equities are ownership shares of a company.[1] When Companies want to raise capital for their business, they issue shares to the public in exchange of money which serves as capital for the business. Buying shares in a company makes the buyer a shareholder, who is rewarded by dividends. Stocks like most assets class are prone to either an appreciation or a depreciation. A share appreciation is when the value of shares increase over time and the shareholder will get higher returns in dividends. If a share depreciates, it means the price value of the share falls which will in turn lead to a decline in the returns from the shares.
[1] US Bank,4 Major Asset Classes Explained, https://www.usbank.com/financialiq/invest-your-money/investment-strategies/asset-classes-demystified.html.
Fixed income assets
Fixed incomes are debt security. These are a means of borrowing where an institution borrows money from the public due for an interest rate known as coupon over a specific during of time. Bonds are a typical example of fixed income assets.
Cash or Its equivalent
Cash is an inevitable asset for basic and daily life transactions. People who prefer liquidity keep their money in cash for purpose of accessibility.[1]
Real Assets
These are tangible assets such as property; both personal and real and commodities such as oil, gold, etc.
The Status of Cryptocurrency: Ongoing debates
The debate on what cryptocurrency represents, that is; whether Money or an Asset is an intense one. The intensity of the argument doesn’t just lie on the technicality or operability of Cryptocurrency as much as it lingers around the impact of Cryptocurrency on the global financial market and financial stability. As opined by Dirk G. Baur, KiHoon Hong & Adrian D. Lee, in the paper, “Bitcoin: Currency or Asset?”[2], the accreditation of Bitcoin as either currency will have an impact on Fiat currency of countries on the one hand, while the status of an asset will generate competition between Cryptocurrency and other assets like stocks, fixed income assets and real assets. The first question this article will address is if Cryptocurrency is money?
Is Cryptocurrency Money?
The answer to whether Cryptocurrency is money is dependent on whether Cryptocurrency plays the three basic functions of Money. Money generally acts as a medium of exchange, Unit of Account and a store of Value. As a means of exchange, Cryptocurrency must be tradable and have an attached value. For Cryptocurrency to act as unit of account, it has to function as a good system of measurement. To function as a store of value, the purchasing power of cryptocurrency at present must be roughly the same on a future date[3] According to the Bank of England,[4] it is preferable for Cryptocurrencies to be called Assets than Money. According to them, the utility ratio of Cryptocurrency in the purchase of basic life utilities in England for example is not real. They argue that it is slow and even more expensive to make payments than Fiat currencies. Another argument put forth is the lack of security of Cryptocurrency and the fact that there is no central bank to regulate its demand and supply
[1] Ibid. Note 1.
[2] Dirk G. Baur, KiHoon Hong & Adrian D. Lee, 2015, Bitcoin: Currency or Asset? Available at, delivery.php (ssrn.com)
[3] David. W. Perkins, April 9, 2020, Cryptocurrency: The Economics of Money and Selected Policy Issues, Congressional Research Service, R45427, Page 2, Available at, Cryptocurrency: The Economics of Money and Selected Policy Issues (fas.org)
[4] The Bank of England, May 19. 2020, What are Cryptoassets? Available at, What are cryptoassets (cryptocurrencies)? | Bank of England
The International Monetary Fund (IMF) argues that Bitcoin and other Cryptocurrencies do not fit the definition of currency. Basically, to the IMF, cryptocurrencies are neither issued by a non-governmental authority nor a central bank and have a low acceptability rate as a medium of exchange. Based on the above argument, if cryptocurrencies were issued by the central banks of countries, it would have been characterised as money. That’s why the IMF classifies Central Bank Digital Currency (CBDCs) as electronic money. CBDCs are cryptocurrencies issued by central banks of countries.
Is Cryptocurrency an Asset?
Many institutions have agreed that cryptocurrency is an asset. As a matter of fact, most institutions including the IMF prefer the appellation crypto asset than cryptocurrency. The rationale is that, most crypto users who own cryptocurrencies hold it for a very long time in wait for the tokens to appreciate in value. According to research conducted by Dirk G. Baur, KiHoon Hong & Adrian D. Lee, Bitcoin, which is the leading cryptocurrency is held more as an investment than it is used as money. They argue that although the original intention of Bitcoin was to be used as a medium of exchange, it has been overridden by its use as an asset and investment. This was the conclusion of their survey which revealed that 1/3 of Bitcoins holdings are by investors, that is, Bitcoin users who receive Bitcoin and store them without an intention of using or transferring to other users.[1]
Commenting on Cryptocurrencies as an Asset, the IMF classify Cryptocurrencies as an Economic Asset. However, it further classifies them as non-financial assets rather than financial assets.[2] The IMF Macroeconomic guideline classifies Assets as either Financial or nonfinancial. They argue that cryptocurrencies cannot be classified as financial assets because of the absence of a counterpart liability on the part of the cryptocurrency issuers.
Conclusion
From the foregoing analysis, cryptocurrency was originally intended to serve as a medium of exchange, that is a means of peer to peer (P2P) payment. However, Cryptocurrencies like Bitcoin have rather evolved to become a store of value for many, as about 1/3 of Bitcoin holders express the desire to hold their Bitcoins for an indefinite period of time. Meanwhile Bitcoin is seen by many as a store of Value, Bitcoin does not represent the entire cryptocurrency. There are over 12,000 of Alternative Cryptocurrencies and these cryptocurrencies have not received the same significance as Bitcoin. This is because most users of these alternative Cryptocurrencies tend to use them just as a means of payment and peer to peer transactions. Although it would not be an exaggeration to state that cryptocurrencies operate both as money and asset, the debate is still an ongoing one and also, cryptocurrency is still evolving. Therefore, a definite conclusion on whether cryptocurrency is an asset or money or both is a matter for future determination.
[1] Dirk G. Baur, KiHoon Hong & Adrian D. Lee, 2015, Bitcoin: Currency or Asset? Pp. 10Available at, delivery.php (ssrn.com)
[2] Marcelo Dinenzon et. al, Treatment of Crypto Assets in Macroeconomic Statistics, International Monetary Fund Pp. 9, Available at,