Examining the underlying value of digital assets and how to find it.
It’s easy to get taken in by the fervour and excitement of digital assets.
When Steve Wozniak, co-founder of Apple, recently launched his digital token – the WOZX – its market capitalisation grew to $950M in the first 13 minutes – 10 times the listing price.
It’s these “gold rush” conditions that JP Morgan’s CEO Jamie Dimon famously warned against in 2017.
“It’s worse than tulip bulbs. It won’t end well.”
However, smart investors now understand that digital assets can be a viable diversification strategy for their portfolio. They are evaluating these assets on more traditional metrics like value, growth adoption and stability. They are not the high-level risk-takers or opportunists that have gone before speculating on digital tokens.
So how do investors identify less volatile digital assets and make informed decisions about which assets to add to their portfolio?
How digital assets gain value
The platform for digital asset exchange can be a platform for a variety of different assets and asset classes which attempts to tie the digital asset to some form of intrinsic value.
But not all digital assets are backed by physical, or the promise of physical assets and the review and returns they may bring to the investor.
In his report “Cryptocurrency Exchanges in Australia”, IBISWorld researcher Yin Huey Yeoh outlines this as a primary concern with many digital assets.
“The intrinsic value, knowledge and potential behind many of these currencies is in many cases immeasurable,” he stated.
Even our government-backed token of value – the dollar – is based on an agreed value rather than backed by physical assets. The value of the dollar fluctuates based on a complex variety of factors and traders stake their position every day based on what they think it should be worth.
The traits that give value
There are numerous traits or factors of currency that give assets value. These include a limited supply, utility, divisibility, portability, durability, adoption and trust.
If we apply these traits to digital assets, we can see that digital assets often outperform fiat currency. Digital assets are simply more efficient, more cost effective and are less controlled than traditional forms of currency.
It also allows us to start evaluating digital assets against these traits to identify assets that have greater potential to be of use in real-world scenarios, and thereby increasingly valuable.
Moving from speculation to realisation
It’s not just about the continued growth of different digital assets, but also the increased interest from the general public and the clearer opportunities digital assets now present. Combine this with the global financial instability in cash transactions and fiat currencies in general, this has seen major organisations and governments make moves in this space.
Several countries, including Ecuador, China, Senegal, Singapore and Tunisia, have already launched their own digital currencies. Estonia, Japan, Palestine, Russia and Sweden are not far behind.
Federal governments are also playing catchup putting in place legislation and regulation applying to digital assets and their exchanges. But effectively they have accepted that digital asset transactions are here to stay.
Time to take a breath
We know that digital assets are a nascent technology. The fervour we see, particularly in terms of meteoric asset value increases, will diminish over time as more people look past digital assets as speculation and move closer to the transactional nature of digital currencies – moving from the speculative investor to the transactional investor.
The transactional investor will look for a digital asset that can meet their needs in terms of obtaining goods and services but also has the ability to appreciate based on the underlying structure of the asset.
Given that portability, durability, division and trust are inherent traits of digital assets, the transactional investor will be looking for traits harder to quantify: primarily utility, adoption and value.
How will transactions be built?
Currency in any form was initially created within a community to allow ease of trade and exchange of value.
With the advent of digital assets the size of that community is no longer bounded by geography as it was originally, or national borders as it is today.
A community today can reach into every country, every city and every home thanks to the Internet.
Community-based currencies satisfy the need for utility and value through acceptance and adoption throughout that community. The larger the community, the greater the acceptance, the demand and hence the value.
Additionally, when you start to view a digital asset as a transactional tool, rather than a speculative asset, you start to see the commercial opportunities that can underpin and support an increase in demand for that asset: these could include loyalty programs, digital community market places, financing, housing and more – offerings similar to those usually provided by traditional credit cards and banks.
To apply the innovation adoption lifecycle to the advent of digital assets, we have to realise the need to start to address the early adopters and early majority, rather than the innovators whose appetite for risk is greater.
A community currency or asset needs to remove the barriers to entry, making it easy to join the community. It needs to be simple, transparent and secure, and it needs to reduce the volatility we have seen in the marketplace to date. It needs to give the consumer confidence.
This is where the new opportunity lies. It’s an opportunity with less risk but greater possibilities built upon the growth of the community around the currency – adding merchants, traders and consumers to an ecosystem of trade with no borders and growing transactions and value within that ecosystem.
BTX is a Digital Currency Exchange built to house Qoin, a digital currency focused on community, adoption and transactability. Classified as a utility coin, Qoin is transacted in the community via a QR code with a transaction speed of under 5 seconds making it truly adaptable for everyday purchases and sales.
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This article is brought to you by the BTX Trading Desk. Qoin, currently trading on the BTX exchange, launched in January 2020 with a vision to create a global digital asset with a commerce focus. An asset easy to obtain and easily used to transact anywhere in the world. Over 17,000 merchants throughout Australia and NZ have joined the Qoin community with over 2,000 new validated merchants per month. Qoin has seen over 30,000 wallet downloads in the first 12 months. Qoin launched into New Zealand late 2020 and will be launching in several new markets in 2021 including the EU, UK, South Africa, Canada, Thailand, and India.