Cryptocurrencies are NOT Commodities!
Okay, I want to talk about this. "Cryptocurrencies are not commodities" was the title of a recent post on USCF Substack. There's still maybe some confusion about this, so can you elaborate?
Sure. That was kind of a fun piece we put together. A lot of people have been asking that question for a while: is it a commodity? Some people consider it a commodity, others don't. One thing that's happened recently is the regulation, which was uncertain, has shifted to where crypto is starting to be regulated a little more like a commodity.
Just because there are futures on something does not make it a commodity. The big difference is obvious: a commodity is tangible, while a cryptocurrency is virtual. That alone separates it. I think the main thing you want to look at is what differentiates an asset class. The most important thing, I think, is the correlation that we've been talking about.
Commodities give you diversification from equities, especially those risk-on equities like the Magnificent Seven, where cryptos have tended to correlate much more strongly with tech funds and technology stocks. So they're really giving you a very different exposure than commodities in general. It's true that commodities, when you look across the space at cocoa, cotton, and crude oil, don't correlate with each other. The same thing goes for Bitcoin.
When you look at them together and you look at the average correlation of a commodity versus crypto, you're getting a differentiation from commodities that is not the same as crypto. So I think crypto is its own asset class. Bitcoin is not a commodity. There are futures on it, and it is regulated by the CFTC, but there are a lot of things that differentiate it. I think they're two different things that you can use in your portfolio for different purposes and in different ways.
