Over the last six months, Coinbase has worked closely with ARK Invest to study the characteristics of various asset classes. Diving deep into the world of capital markets and public blockchains, we analyzed bitcoin’s market behavior in the context of major asset classes such as equities, commodities, and real estate. Our work culminated in the paper “Bitcoin: Ringing the Bell for a New Asset Class” which examines how bitcoin’s unique characteristics are breaking ground for an entirely new asset class: cryptocurrency. What follows is a brief summary of our favorite takeaways.

No asset has evolved from concept to storing billions of dollars as quickly as bitcoin. In the seven years since inception, a surprisingly robust ecosystem has developed. Retail traders have the infrastructure to drive over one billion dollars in daily liquidity while professionals can access tailored financial products such as Grayscale’s Bitcoin Investment Trust and TeraExchange’s bitcoin forwards. This ample liquidity and opportunity for exposure, or investability, is a key characteristic of all asset classes and one that bitcoin clearly exhibits.

Bitcoin also displays a unique politico-economic profile. Its basis of value, governance, and use cases are clearly differentiated from other asset classes. For example, the creation of new bitcoin is governed by a protocol run across a decentralized network of computers whereas fiat currencies such as the U.S. dollar rely on government-applied monetary policy.

Given this unique politico-economic profile, we expect bitcoin’s price to behave differently from other assets since it is driven by distinct market forces. Indeed, bitcoin’s price movements have had near zero correlation to other asset classes over the last five years - implying price independence.

Finally, bitcoin’s risk-reward profile can be determined by measuring risk (in the form of price volatility) vs. reward (in the form of absolute returns). This metric, known as the Sharpe Ratio, can be compared across asset classes. Remarkably, bitcoin has better compensated investors for the risk they are taking in 3 of the last 5 years, outperforming all other major assets classes.

While a consensus-based cryptocurrency may seem foreign, it’s no surprise that such an asset was born in an increasingly digital and socially networked world. We believe bitcoin is the first — but most certainly will not be the last — compelling example of this emerging asset class.