When crypto was new it was simple. There was Bitcoin. Its purpose was to provide a way to send money via the internet. The system was meant to work outside of any central controls but otherwise work like a traditional currency. Although the basic idea of how a cryptocurrency should work is still there, the world of crypto has gotten a lot more complicated. As of 2022 there are more than twelve thousand different crypto tokens with as many as one thousand more being added each month. There are stablecoins and cryptocurrencies that facilitate non-fungible tokens, decentralized finance, and the metaverse. An investor can be excused for being confused. Perhaps a new crypto classification system dreamt up by Goldman Sachs will alleviate a bit of the confusion.
Making Sense of Crypto for Institutional Investors
Goldman’s new service will be called datonomy which is a play on the word taxonomy. It was devised along with MSCI and Coin Metrics and will be a subscription service available through Goldman’s Marquee institutional investor digital storefront. The point is to classify and make sense of hundreds of tokens that investors might be interested in. They expect institutions to come up with investment products tied to value-transfer coins, smart contract platforms, decentralized finance, and the metaverse. This sort of attempt at standardization is common in the investment world as institutions take emerging market niches and break them down into investable (and for the companies, profitable) niches.
Risk Management and Investment Tracking for the Crypto World
Crypto, welcome to the big leagues of investing. When traditional investors put their money into something they expect to make a profit, have a way to track how well they are doing, and be able to understand why their investment is doing well or poorly. The radical ups and downs of the crypto market over the few years of its existence may be exciting for some but have not impressed the folks who manage assets in the trillions as opposed to Bitcoin’s less-than-$400 billion in market cap. Risk management is a huge part of the traditional investing world and the risk in crypto with a two-thirds loss of market cap in the last year worries many. On the other hand, fortunes are often made by investing at the bottom of a market crash. Using concepts like intrinsic value, investors seek to pick up good long term investments that are underpriced in regard to their long term potential. The crypto classification system is a first step on this path for cryptocurrencies.
Identifying and Exploiting Crypto Fundamentals
What attracted so many to the crypto world were the dramatic rallies that made millionaires and even billionaires. The hype that accompanied these rallies said that crypto was a refuge in times of trouble, a hedge against inflation, and a safe haven in times of chaos and war. In the last year none of those arguments have turned out to be true. What has become clear is that cryptocurrencies that have practical use in decentralized finance or in realms like NFTs or the Metaverse will have baseline values that will not evaporate with the next step down in Bitcoin value. Here is where we expect Ethereum to pass Bitcoin in market cap. By breaking down the crypto world into recognizable subsets based on strength, function, and predictability this classification system will make investing easier and safer and provide support for crypto as an asset class.
Crypto Classification System – SlideShare Version
Crypto Classification System – DOC