Cryptocurrencies become investment targets rather than speculation
Stablecoins serve as financial infrastructure
Bitcoin is used as a ‘digital safe’
Ethereum highlights ecosystem expansion
Q. In the U.S., there is increasing interest in cryptocurrencies as they are allowed for investment in personal retirement accounts. We hear that major university funds, including Harvard, and global corporations are starting to include cryptocurrencies in their portfolios. Previously, cryptocurrencies were the domain of only a few investors, but now we see a shift in perspective from the financial and institutional sectors. How should we understand this market?
Han-Jae Lee, Team Leader at Shinhan Premier Family Office Banpo Center
A. One of the key aspects to focus on is stablecoins. Stablecoins, as the name suggests, are coins with ‘stable’ value. They are typically pegged one-to-one to the U.S. dollar, and the issuers of stablecoins use the dollars exchanged by investors to purchase safe assets like government bonds. The interest income generated from this serves as the main revenue source for these issuers. Unlike simply minting coins, stablecoins function as a financial infrastructure, bridging the inflow of dollars with the demand for government bonds. The U.S. government’s move to incorporate stablecoins into the financial system reflects this role.
Another point is that cryptocurrencies like Bitcoin are transforming into a means of “value storage.” Gold has long been valued as a safe asset during times of inflation, and Bitcoin, tagged as ‘digital gold,’ is gaining a similar standing. With a capped supply of 21 million bitcoins, its scarcity is evident, and as pension funds or large institutions begin purchasing, market liquidity increases and so do expectations for price hikes. Some companies purchase Bitcoin using corporate funds, treating it as a type of ‘digital safe.’ In this context, Bitcoin is increasingly seen as a hedge against inflation. However, given Bitcoin’s relative volatility, there is a need to be cautious about companies being overvalued compared to their Bitcoin holdings.
Next is the ‘ecosystem expansion’ of cryptocurrencies, with Ethereum as a prime example. Ethereum is not merely a currency but a platform capable of executing smart contracts on the blockchain. It is used as the underlying technology for stablecoin transactions and decentralized finance (DeFi). As stablecoins become more prevalent, the value of the Ethereum network is likely to rise, and companies that provide network infrastructure or create related services—alongside global crypto exchanges—stand to benefit directly.
There are various methods of approaching cryptocurrencies. Investors can directly buy cryptocurrencies through exchanges, but they should be aware of potential risks such as loss or hacking. Overseas, physical Exchange Traded Funds (ETFs) have been introduced, offering a safe and regulated investment option. However, such options are limited in the domestic market. Instead, some active ETFs in South Korea invest in companies that purchase Bitcoin, issue stablecoins, or run exchanges. Domestic investors can consider both direct purchases and indirect exposure through ETFs. Understanding the pros and cons of each option is crucial.
The perception of the cryptocurrency market has moved beyond a mere ‘speculation’ framework. With its role as financial infrastructure connecting dollars and government bonds, its establishment as a valuable store of wealth, and its foundation for the future digital economy, it’s essential to look beyond simple price volatility and consider the deeper meanings and logic underlying cryptocurrencies.