Size Matters: Does Crypto Stack Up To Other Asset Classes?

The total crypto market value hit $1 trillion last week, a milestone not even achieved at the height of the ICO boom. It made headlines in mainstream media. Believers, including myself, say crypto is in its first inning and still has a long way to go up. So how does crypto’s market cap at $1 trillion compare to other asset classes?

The aggregate crypto market cap over the last 4 years progressed from $17 billion in 2017 to a high of $827 billion in early 2018 on the back of the ICO bubble. It hovered between $100 and $400 billion for 2019 and then started its ascent to ~$1 trillion, where we stand now.

However, crypto is still relatively small when comparing it to other global asset classes. Gold, whose shadow it often walks in, still has a market cap of $12.8 trillion (197,576 tonnes above ground reserves at a spot price/oz of $1,845). Global equities and debt securities have market values around $90 & $130 trillion respectively.  While global Real Estate is in the ballpark of ~$280 trillion, dwarfing all other asset classes.

To understand how impressive cryptocurrency growth has been, here are a couple relatable markets in terms of size:

• 🇨🇦  Canada’s M1
• 🇳🇱  The market cap of Dutch equities
• 🇲🇽  Mexican GDP
• Google’s market cap
• Global announced M&A deal value for Q4 of 2020
• The aggregate value of all global equity and equity-linked new issuance in 2020

Next, let’s make a distinction between bitcoin and all of crypto. Bitcoin continues to make up a disproportionate size of the asset class, representing 69% of crypto’s overall market cap, according to Messari data.

Ex-stablecoins, there are currently 108 assets with a market value larger than $100 million.Taking bitcoin and Ether (with a market cap of ~$120B) out of the equation, we are left with ~$130 billion or 230 assets larger than $25 million. This is still quite a bit smaller than other niche asset classes with distinct investor bases. Convertible bonds as an asset class counted 750 issues outstanding globally for an aggregate market cap of $380 billion as of June 30, 2020. High yield had 3,442 issues outstanding globally at the end of 2020 for an aggregate market value of $2.4 trillion. 

Crypto is unique. It is not only an emerging asset class, but it is a revolutionary one. As an asset class its common denominator is not a business, currency, building, or commodity. Instead, it is a multi-dimensional digital value container powered by a public blockchain that required an entirely new market infrastructure.  Adoption will validate use cases over time along with valuation methods.  This will make it easier for institutional investors to grasp and compare.

Bitcoin is becoming the focal point of most traditional institutions now as the narrative of digital gold becomes more pervasive.  In this capacity it is viewed as an uncorrelated asset that can enhance overall portfolio returns on a risk-adjusted basis. Compared to gold it remains small, but investors are very bullish on its capacity to gain further traction and grow to a similar if not larger size.

As for the rest of the asset class, it remains small and not very diverse from an institutional investor perspective. Institutional investors care about size both from an opportunity and risk management perspective.

As an emerging asset class, investment requires a lot of capital and resources to navigate the gaps in infrastructure.  Theoretically this could make sense for larger investors, if there is enough opportunity for outsized returns on a risk-adjusted basis compared to other investment options. Institutional investors are asking themselves how much capital can be deployed, is there the ability to build a diversified portfolio, is there enough liquidity? Moreover, bitcoin is accessible through traditional infrastructure and channels like the CME and Grayscale which significantly decreases operational risk and required resources.

So yes, size matters. Although, at $1 trillion, the overall asset class may not be big enough for most, it is still a significant milestone. It hasn’t gone unnoticed, quite the opposite. It has gathered a lot of attention and for all the right reasons. Crypto has made a statement, it has established itself as an emerging asset class that is here to stay. Although still early, it has matured a long way since it last came close to this milestone in 2017. It remains volatile and is not for the faint at heart, as illustrated in recent days, but it has de-risked from the previous bull market. Current institutional and mainstream media interest are a reflection of all of that.