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You must have heard of Bitcoin or Ethereum, or other cryptocurrencies by now. A cryptocurrency is a digital currency that runs on a blockchain network and eliminates the middleman in financial exchanges by allowing peer-to-peer transactions. Thanks to the public ledger system used to record all transactions, many cryptocurrency transactions can appear trustless. Most cryptocurrencies are, therefore, decentralized. 

You may have also heard of Bitcoin hitting the $50,000 mark in 2021, an all-time high for the cryptocurrency. When bitcoin was launched, each Bitcoin did not have value. When it started trading, it was trading at $0.08 per coin. This means that anyone who bought it at that price and held it until it hit the $50,000 mark essentially made more than 62 million percent in profit. Yet many have also lost some or all the money they invested in cryptocurrencies. 

You may meet someone who asks you if they should consider cryptocurrencies an investment or an asset. Before giving you the answer, it may first be necessary for you to understand the two terms and the differences between them. 

What is an asset?

According to the Marrian-Webster dictionary, an asset is anything of value owned. For example, a car, your house, or even your money in the bank can be an asset. When calculating the net worth of an institution, business, or individual, the value of their assets adds to their net worth. Essentially, you get your net worth by subtracting any liabilities (debts) from your assets. For the purposes of this article, we will consider an asset to be anything of significant value owned so that you eliminate things that do not add substantial value. 

There are several asset classes. However, one way you can divide assets into is tangible and intangible assets. As the names imply, tangible assets can be seen, touched, and felt like your home or car. Intangible assets cannot be held but can be changed to physical money. Some examples include shares, bonds, and even the money in your bank. 

What is an investment?

For something to be considered an investment, you spend money on it for income or profit. This implies that you are expecting returns for this item in the future. When you ask someone to give you examples of investments, you will often hear many people mentioning their house, car, or even shares as investments. They may also mention machinery and buildings. In this case, you may be mistaken to think that most assets are investments, but that is not always the case. 

While you may spend money on something to make a profit, it all boils down to two types of investments; poor investments and sound investments. An investment can, therefore, long-term, lose you money. Financial advisers have been making it clear to people that while many investments are assets, not all assets are investments. Some investments are liabilities. 

For example, building a home or buying a car for personal use does not make it an investment. This is because the house and car will cost you money for maintenance and repairs long term and will most likely depreciate in value with use. However, flipping houses, building or buying rental homes, or buying a car to use as a taxi can be an investment as all of these things either bring income or profit. 

Are cryptocurrencies investments or assets?

Now that you understand the distinction between the two, one can conclude that the answer depends on the person that owns the cryptocurrency. For example, if you bought a cryptocurrency to facilitate a transaction, it is merely an asset to you but not an investment. This is especially true if you do not intend to sell it for a profit later on. 

However, if you buy a cryptocurrency to sell it later for a profit, it is an investment and an asset. Like other investments, it could be a good investment or a poor investment meaning it could lose you money or make you a profit. In both instances, the cryptocurrency is an asset because it is an item of value that you own. 

Intrinsic value vs. market value

One of the things that makes people question the validity of cryptocurrencies as an asset is the issue of intrinsic value and market value. The intrinsic value of anything is the estimate of the actual value of that thing. The market value, on the other hand, is how this thing is valued in the market. Many people refuse to acknowledge that cryptocurrencies are an asset because they do not have intrinsic value. Instead, their market value hinges on the value that we give them. If people did not value cryptocurrencies, they would be worth nothing. 

Most of these people forget that even fiat currency has no intrinsic value. A government, its citizens, and its bank give the money value and consequently accept to use it as a medium of exchange.  As long people continue to value a cryptocurrency, it remains a digital asset. 

Conclusion

The answer to the question, ‘are cryptos considered as investments or assets?’ is not straightforward. While it is a digital asset, whether it is an investment or not depends on the person who owns it and their intention for owning the cryptocurrency. If they intend to use it only as a medium for exchange, it is purely an asset. But, if they expect profit or income from it, it is both an asset and an investment. 

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