Crypto 101, Part 1: Understanding Cryptocurrencies as an Asset Class

Welcome to Part 1 of our Crypto 101 series, which aims to demystify cryptocurrencies for investors and curious readers alike. The rise of cryptocurrencies and blockchain-based assets has fueled debate about their place in financial markets. As these digital assets gain visibility, determining how they differ from traditional investments, how they should be valued, and their potential role in modern portfolios has become a central challenge for investors. In this introductory article, we clarify what makes cryptocurrencies unique and review key factors in evaluating their place in investment strategies. Part 2 will cover crypto investment instruments, while Part 3 will guide you through buying crypto safely, with a focus on practical tips and security best practices.

What Are Cryptocurrencies?

Cryptocurrencies, also called crypto-currencies or cryptos, are a form of digital or virtual currency that uses cryptographic techniques to secure transactions, control the creation of new units, and verify the transfer of assets. Unlike traditional currencies issued by governments (such as dollars or euros), cryptocurrencies operate on decentralized networks based on blockchain technology.

In simple terms, a blockchain is a technology that enables the secure sharing of data. The data, typically a list of transactions, is stored in a database called a ledger (essentially like an accounting book).

Having established what cryptocurrencies are and the technology supporting them, let's now transition to exploring where these assets fit within the broader landscape of financial markets.

What Is an Asset Class?

An asset class is a group of financial assets that share similar characteristics and behave similarly in the marketplace, making them distinct from assets outside that group. Grouping assets into classes helps investors understand, compare, and manage risk and return more effectively.

Traditionally, investors have considered the following asset classes:

• Equities or stocks: shares representing ownership in companies, including stock indexes like the S&P 500, DAX, CAC40, or FTSE. They offer the potential for higher returns, but also higher volatility and risk, contrasting with the generally steadier nature of bonds or cash.
• Fixed Income (bonds and short-term interest rates): debt instruments where investors lend money to entities (governments, corporations) in exchange for interest payments. They generally offer lower risk and more stable returns compared to equities, making them distinct in risk-reward profile.
• Cash and cash equivalents: highly liquid assets like money market funds or Treasury bills. They offer lower returns compared to other asset classes, but serve as a foundation of stability.
• Real estate: physical property or real estate investment trusts (REITs), providing income through rents and potential for capital appreciation. Real estate stands apart by combining physical assets and income generation, unlike financial assets.
• Commodities: tangible goods like gold, oil, or agricultural products. They are often uncorrelated with stocks and bonds, providing potential inflation-hedging and diversification.
• Currencies (Foreign Exchange or FX): the exchange of one currency for another, such as EUR/USD or USD/JPY. FX markets are the largest and most liquid in the world, often driven by macroeconomic trends, interest rate differentials, and geopolitics. Currencies are traded both as speculative instruments and as part of broader portfolio hedging strategies.

Are Cryptocurrencies a Different Asset Class?

Cryptocurrencies and crypto-related assets challenge traditional definitions of asset classes. While they share some traits with existing asset classes, such as liquidity (like currencies), high volatility (like equities or commodities), and utility within a network, they also possess several unique features that distinguish them.

Most cryptocurrencies are decentralized digital tokens that do not represent ownership in a company (as seen with stocks) or claims to debt (as in bonds). Instead, many provide users with access, utility, or participation rights within a blockchain network. Their decentralization, programmable nature, and governance structures further distinguish them from traditional asset classes.

Major cryptocurrencies are liquid on many exchanges, meaning that it is relatively easy to buy and sell them with minimal delays. However, there are thousands of cryptocurrencies, and not all of them are liquid.

In terms of correlation, these digital assets often show low or unstable relationships with traditional investments. Their prices can move independently from stocks, bonds, or commodities, offering potential diversification benefits to investment portfolios.

Volatility is another defining trait—these assets are generally highly volatile, often more so than equities or commodities, but have also shown potential for high returns. Notably, as cryptocurrencies (especially major ones like Bitcoin and Ethereum) have seen increased institutional adoption, their volatility has gradually declined, although it still remains higher than most traditional assets.

It is also important to note that not all cryptocurrencies are created equal, and we can at least distinguish stablecoins (a type of cryptocurrency whose value is pegged to a reference asset, such as the USD) from other cryptocurrencies.

Given their relatively recent emergence, the classification of crypto assets is still evolving. Some experts and institutions now consider cryptocurrencies to be a new, standalone asset class due to their distinct properties and market behavior. Others group them within 'alternative investments' or even as commodities. As the crypto market matures and regulation develops, consensus on its status as a distinct asset class may become clearer.

How to Access Crypto Markets

There are several ways to access the crypto markets, each with its own level of complexity, risk, and potential benefits. The following sections outline the main options—from holding crypto directly in a wallet, to using exchanges or investment products, and engaging in decentralized finance (DeFi) and other ecosystem activities. Understanding these options helps you choose the approach aligned with your goals and experience.

Crypto Wallet

A crypto wallet is a software application or hardware device that allows users to securely store, manage, and interact with their cryptocurrency holdings.

Wallets are the intended, fundamental access point to cryptocurrencies. They embody the philosophy of self-sovereignty in cryptocurrency: "not your keys, not your coins."

A wallet stores the private keys, which prove ownership of coins or tokens on the blockchain.

Wallets can be categorized as custodial or non-custodial. In a custodial wallet, a third party (like an exchange or service provider) holds and manages your private keys on your behalf. You trust them to keep your funds safe, but you don’t have full control.

With a non-custodial wallet (also known as self-custodial), you personally hold the private keys. This means you have full control and responsibility over your crypto. If you lose your keys, there’s no backup or customer support that can recover your funds.

Wallets can also be classified as hot wallets or cold wallets. A hot wallet is an app or program that runs on your computer, smartphone, or online browser. It stores your private keys digitally and allows you to easily send and receive crypto.

Hot wallets are very convenient because they're connected to the internet, but they can be more vulnerable to hacking or malware. Examples of hot wallets are: MetaMask, Solflare, Trust Wallet, Coinbase Wallet, or Exodus.

A cold wallet is typically a physical device, like a USB stick, that securely stores your private keys offline. You connect it to your computer only when you want to make a transaction. Because it’s disconnected from the internet most of the time, it offers much stronger protection against hacks and theft, making it ideal for long-term storage or holding large amounts of crypto. Examples of cold wallets include the Ledger Nano S and Nano X, the Trezor Model One and Model T, and the Coldcard.

Staying Safe

Unfortunately, there are numerous scams aimed at stealing your cryptocurrency. While wallets offer self-sovereignty, they also come with full personal responsibility. This means you must remain vigilant to common scams that attempt to steal your crypto. Here are key warnings every user should understand:

#1–Never share your seed phrase (recovery phrase)

No one, not even wallet support, exchanges, or staking platforms, will ever need your 12-word or 24-word recovery phrase. If someone asks for it, it’s a scam. Always.

Scammers often disguise their phishing sites to look like official platforms and ask you to "verify" or "claim rewards" by entering your phrase. Once entered, your funds are instantly drained.

#2–Watch out for fake tokens and airdrops

Anyone can send fake tokens or NFTs to your wallet that appear legitimate. These often include links promising staking rewards or airdrops, but lead to malicious sites that steal your funds. Do not click links from tokens or NFTs that you didn’t request.

#3–Only connect to trusted, official sites

Before connecting your wallet to any website, ensure the domain is correct and secure (it should start with https://). Bookmark trusted apps and avoid clicking random links from social media, DMs, or email.

#4–Understand what you’re signing

Wallets may prompt you to “Sign a message” or approve a transaction. If you’re not 100% sure what it’s doing — stop.

Scams often trick users into signing a transfer of funds or granting permission to drain tokens.

Exchanges

Another way to buy and sell cryptocurrencies is through an exchange, although in this case, of course, you are limited to the assets quoted by the exchange.

Mostly, cryptocurrencies are traded in two types of exchanges: centralized exchanges (CEX) and decentralized exchanges (DEX).

Centralized Exchanges

A centralized exchange is a crypto trading platform run by a company or organization that acts as a trusted intermediary between buyers and sellers.

You deposit crypto or fiat (“normal” currency) into the exchange account (or wallet). The exchange holds your private keys, so you don’t directly control the coins. This means that if the exchange is hacked or goes bankrupt, your funds are likely to be lost.

Centralized exchanges are typically regulated and require Know Your Customer (KYC) checks.

CEX are best for liquidity, ease of use, and advanced features, but require trusting a central party.

Some examples of CEXs are Binance, Coinbase, Kraken, KuCoin, and OKX.

Decentralized Exchanges

A decentralized exchange is a platform that enables peer-to-peer trading of cryptocurrencies without the need for a central intermediary. Trades happen directly between users, typically using smart contracts on a blockchain.

You connect your wallet (e.g., MetaMask) directly to the DEX interface. You keep control of your private keys and assets until you execute a trade. Trades happen via smart contracts.

When trading through a DEX:

• You retain ownership of your coins at all times.
• There is no need to trust a centralized party.
• All trades and liquidity pools are on-chain and public.

DEXs are more private, censorship-resistant, and non-custodial, but may have less liquidity and higher fees (especially on the Ethereum mainnet).

Some examples of DEXs include Uniswap, Curve Finance, SushiSwap, PancakeSwap, and dYdX.

Traditional Exchanges

Alongside specialized crypto platforms, a growing number of established exchanges have integrated crypto products into their offerings, making it easier for investors to gain exposure through familiar channels:

• Chicago Mercantile Exchange (CME): Bitcoin and Ethereum futures & options.
• Chicago Board Options Exchange (CBOE): Bitcoin and Ethereum spot and futures.
• Deutsche Börse Xetra: ETNs (Exchange Traded Notes) for Bitcoin, Ethereum, and others.
• SIX Swiss Exchange: ETPs (Exchange Traded Products)/ETNs on BTC, ETH, SOL, ADA, etc.
• Toronto Stock Exchange (TSX): Physically-backed spot Bitcoin & Ethereum ETFs.
• London Stock Exchange (LSE): Crypto ETPs/ETNs listed on SIX or Xetra exchanges and cross-listed on LSE.
• Singapore Exchange (SGX): Bitcoin and Ethereum price indices (with CME).

Traditional exchanges are heavily regulated entities that also offer crypto-linked financial products. They are not a crypto exchange per se and don't fit the standard CEX definition used in the crypto world.

One of the advantages of traditional exchanges is that they provide regulated exposure for institutions that would otherwise be unable to access crypto products.

As the first installment in our Crypto 101 series, this article has laid the foundation by exploring cryptocurrencies as an asset class and how they fit within the broader financial landscape. In Part 2, we’ll take a closer look at crypto investment instruments, from simple products to more complex vehicles. Part 3 will guide you through how to buy your first crypto safely, with a focus on practical tips and security best practices. Stay tuned as we continue to build your knowledge of the crypto world.