Crypto Spot
Also known as: Bitcoin, Ether, Cryptoassets
Bearer assets on public ledgers — a new asset class still arguing about what it is.
1 · SnapshotThe one idea to remember
2 · BeginnerWhat is it, really?
Buying crypto spot means owning units of a cryptoasset recorded on a public blockchain — bitcoin, ether and thousands of others. Ownership is control of a cryptographic key: whoever holds the key moves the coins. No issuer, no registrar, no business hours.
What you're buying differs by asset. Bitcoin aspires to be digital gold: fixed supply (21 million), no yield, a bet on adoption as a store of value. Ether is closer to a commodity-equity hybrid: it fuels a computation network and can earn staking yield. Most other tokens are ventures, protocols or — bluntly — lottery tickets.
Two facts should frame any purchase: volatility is an order of magnitude above equities (50–80% drawdowns are routine, several total-loss events per cycle among smaller tokens), and custody is unforgiving — lose the key or trust the wrong platform (FTX, Mt. Gox), and there is no deposit insurance.
- Asset class
- Digital assets
- Instrument type
- Spot cryptoasset
- Traded
- Crypto exchanges, OTC desks, 24/7
- Typical users
- Retail, funds, corporates, (some) states
3 · IntermediateHow it works in practice
Market structure
- Venues: centralised exchanges (custodial order books), DEXes (on-chain automated market makers), OTC desks for size. Fragmented prices, arbitraged within seconds.
- Stablecoins (USDT, USDC): dollar-pegged tokens are crypto's cash leg and settlement rail — and their own risk story (reserves, depegs).
- Custody spectrum: self-custody (your keys, your responsibility) → qualified custodians → exchange balances (an unsecured claim — the FTX lesson).
- Access wrappers: spot ETFs (US since 2024) moved crypto into ordinary brokerage and advice channels — the structural demand event of recent cycles.
What drives price
- Liquidity conditions: crypto trades like a high-beta risk asset — real-rate rises and dollar strength hurt.
- Halvings and supply mechanics (bitcoin), staking/burn dynamics (ether) — programmatic scarcity narratives.
- Flows and reflexivity: ETF creations, leverage build-ups visible on-chain and in funding rates; sentiment cycles are measurable and extreme.
4 · AdvancedPricing & valuation
Valuation attempts (all contested)
- Monetary-premium models: target market share of gold/store-of-value stock → price per unit of terminal supply, discounted by adoption probability — sensitivity analysis, not valuation.
- Network models: Metcalfe-style value ∝ active-address² fits historically but is unfalsifiable-ish.
- Cash-flow assets: staked ether earns protocol yield \(y\); DCF-like frameworks price it as a perpetual claim on fee revenue — the closest crypto gets to conventional finance.
- Cost-of-production (mining) provides soft floors with regime breaks.
Microstructure and quant features
24/7 trading with no close: realised-vol estimation, VaR horizons and margin cycles differ from TradFi. Jumps dominate tails (kurtosis extreme); volatility clusters violently. Perp funding rates (see perpetuals) function as the market's observable leverage gauge and short-rate analogue. On-chain data (exchange balances, dormancy, realised cap) gives crypto a native "fundamentals" dataset no other asset class has.
The institutional stack
Regulated futures (CME) and ETFs anchor a basis-trade complex (spot ETF vs. CME futures) that has largely normalised bitcoin's term structure; prime brokerage, lending/borrow, and options (Deribit and successors) replicate TradFi's machinery, with periodic reminders (2022's Genesis/3AC cascade) that credit risk re-invents itself in every system.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.