Director of Digital Assets and Advisor Innovation Client Solutions
A digital asset taxonomy is the categorization, or map, of the digital asset ecosystem that investors and non-investors must be well versed in.
The taxonomy can be an especially useful informational and educational resource when seeking to track an investment methodology in the cryptocurrencies market, whether it be the broad market or a particular segment. It can help investors and their advisors in establishing a framework to follow and a research methodology to implement when deciding what makes sense for an individual investor’s needs.
We hope the WisdomTree Digital Asset Taxonomy provides a better understanding of the digital assets ecosystem and its underlying technologies.
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This material is for informational purposes only and contains the opinions of the author, which are subject to change, and should not be considered or interpreted as a recommendation to participate in any particular trading strategy or deemed to be an offer or sale of any investment product, and it should not be relied on as such. This material is not intended to provide investment recommendations and is not an official statement of WisdomTree. This material represents an assessment of the environment discussed at a specific time and is not intended to be a forecast of future events or a guarantee of future results. Readers of this information should consult their own financial advisor, lawyer, accountant, or other advisor before making any financial decision.
This document and all information contained in it or otherwise related to this document should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. All information is impersonal and not tailored to the needs of any person, entity or group of persons. None of the Information constitutes an offer to sell or a solicitation of an offer to buy, any security or other asset, financial product or other investment vehicle or any trading strategy. It is not possible to invest directly in an index.
Information provided by WisdomTree regarding digital assets, crypto assets, blockchain networks or technology providers should not be considered or relied upon as investment or other advice, as a recommendation from WisdomTree, including regarding the use or suitability of any particular digital asset, crypto asset, blockchain network, technology provider or any particular strategy. WisdomTree is not acting and has not agreed to act in an investment advisory, sub-advisory, fiduciary or quasi-fiduciary capacity to any advisor, end client or investor, and has no responsibility in connection therewith, with respect to any digital assets, crypto assets, or blockchain networks or otherwise.
There are risks associated with investing, including the possible loss of principal. Crypto assets, such as bitcoin and ether, are complex, generally exhibit extreme price volatility and unpredictability, and should be viewed as highly speculative assets.
Crypto assets are frequently referred to as crypto “currencies,” but they typically operate without central authority or banks, are not backed by any government or issuing entity (i.e., no right of recourse), have no government or insurance protections, are not legal tender and have limited or no usability as compared to fiat currencies. Federal, state or foreign governments may restrict the use, transfer, exchange and value of crypto assets, and regulation in the U.S. and worldwide is still developing.
Crypto asset exchanges, liquidity providers, networks, protocols, settlement facilities, service providers and other participants in the digital asset ecosystem, and/or crypto assets related to the foregoing, may stop operating, permanently shut down or experience issues due to security breaches, fraud, insolvency, market manipulation, market surveillance, KYC/AML (know your customer/Anti-Money Laundering) procedures, non-compliance with applicable rules and regulations, regulatory investigations or orders, technical glitches, hackers, malware or other reasons, which could negatively impact the price of any cryptocurrency traded on such exchanges or reliant on a digital asset ecosystem participant or otherwise may prevent access or use of the crypto asset.
Crypto assets can experience unique events, such as forks or airdrops, which can impact the value and functionality of the crypto asset. Crypto asset transactions are generally irreversible, which means that a crypto asset may be unrecoverable in instances where: (i) it is sent to an incorrect address, (ii) the incorrect amount is sent, or (iii) transactions are made fraudulently from an account. A crypto asset may decline in popularity, acceptance or use, thereby impairing its price, and the price of a crypto asset may also be impacted by the transactions of a small number of holders of such crypto asset. Crypto assets may be difficult to value and valuations, even for the same crypto asset, may differ significantly by pricing source or otherwise be suspect due to market fragmentation, illiquidity, volatility and the potential for manipulation.
Crypto assets generally rely on blockchain technology and blockchain technology is a relatively new and untested technology which operates as a distributed ledger. Blockchain systems could be subject to internet connectivity disruptions, consensus failures or cybersecurity attacks, and the date or time that you initiate a transaction may be different then when it is recorded on the blockchain. Access to a given blockchain requires an individualized key, which, if compromised, could result in loss due to theft, destruction or inaccessibility. In addition, different crypto assets exhibit different characteristics, use cases and risk profiles.