Is crypto risky speculation or emerging financial infrastructure? Paul Quickenden, Swyftx NZ country manager, unpacks the issue.

Crypto still has an identity problem. Despite billions flowing into Bitcoin ETFs, the largest fund managers and banks in the world building blockchain-settlement infrastructure and increasing use cases in payments and tokenisation, the sector is still commonly framed as little more than speculative risk.

Thankfully, the evidence to the contrary is starkly different and this framing is now outdated.

Bitcoin is not ‘crypto’

One of the biggest mistakes people make is treating all digital assets as one homogeneous category. Bitcoin (a decentralised store of value and monetary network) is not the same as Ether (which is variously called a decentralised super computer,  world computer or digital oil), or other projects like Ripple (payments) or Solana (DeFi).

Stablecoins (tokens pegged to fiat currencies like the US dollar) are not the same as tokenised assets (real-world assets such as shares, property or bonds represented digitally on blockchain infrastructure).

Then, like all markets, there are the more speculative options such as memecoins (the “penny stocks” of crypto driven by internet culture and hype) and NFTs. Different projects carry different levels of risk, utility and long-term potential. Like any asset class, investors need to do their research and know what they are getting into.

The distinctions matter because while parts of the crypto ecosystem remain speculative, other parts are not so quietly becoming the new financial infrastructure and traditional finance is openly embracing blockchain technology.

Large institutions are actively deploying tokenisation, blockchain-settlement systems and digital-asset custody. Stablecoins are increasingly being used for cross-border payments because they can move value faster and more efficiently than some traditional rails. Banks are talking tokenised deposits and the largest fund managers in the world are digitising government bonds, property and equities.

The conversation is shifting from “does this technology matter?” to “how will it integrate?”

The market still prices crypto like it’s 2021

Public perception, however, still tends to anchor crypto to its past. For many people, crypto remains associated with volatility and speculative trading behaviour. That volatility still exists and investors absolutely need to understand the risks involved – but volatility alone does not determine whether something has long-term value.

Technology markets often go through speculative cycles before the infrastructure layer becomes obvious. The internet experienced that exact dynamic during the dot-com era and many companies disappeared, but the underlying infrastructure transformed the world anyway. Take a look at today’s AI market and make your own conclusions.

Crypto is going through a similar transition. It’s now going by its grown-up name – digital assets – and its technology is being actively embedded in payments, central banks and fund managers.  You have AI markets doing millions of transactions a month.  This isn’t a fringe cult, it’s here.

Correlated… until it isn’t

Another interesting part of the discussion is how Bitcoin behaves within a broader investment portfolio. Bitcoin has experienced periods where it moves closely with traditional risk assets and other periods where it behaves quite differently. That combination of correlation and non-correlation is part of why some investors see value in it as a diversification tool.

Advisers will often say that when designing a robust investment portfolio, one of the main goals is diversification through assets with low or negative correlation. In simple terms, when one asset class performs well, another may be flat or declining, helping balance overall portfolio risk.

Because of its ability to decorrelate, Bitcoin can sometimes make a diversified portfolio less volatile overall – maximising returns while managing risk. In simple terms, many traditional assets like stocks and bonds have historically shown relatively low correlation with Bitcoin. This means that even a small allocation can potentially improve diversification outcomes and risk-adjusted returns over time.

Understanding the Sharpe ratio

This is where concepts like the Sharpe ratio (albeit relatively technical) become useful. The Sharpe ratio evaluates the return of an investment relative to the amount of risk taken to achieve that return. Put simply: do the returns justify the volatility?

Historically, Bitcoin has often maintained a surprisingly strong Sharpe ratio despite its reputation for volatility. Fidelity previously noted Bitcoin holding a strongly positive Sharpe ratio of 0.96, reinforcing the idea that the asset’s long-term returns have often compensated investors for the risk involved.

(Rolling 52-week Sharpe ratio data also continues to support this trend and remains publicly available.)

That obviously does not eliminate risk. Relative to many other asset classes, crypto remains volatile and investors should absolutely do their own research. It does, however, challenge the simplistic idea that volatility automatically equals poor investment quality.

Infrastructure hiding inside speculation

Right now, crypto sits in an awkward middle phase. Retail speculation still dominates headlines; the next hyped-up trends still generate irrational behaviour; regulatory uncertainty still creates hesitation. At the same time, institutional adoption continues building quietly underneath the surface.

This all creates a strange contradiction where parts of the sector still look chaotic, while other parts are increasingly becoming financial infrastructure. As we said at the very beginning, crypto is not homogenous. For investors, businesses and policymakers, the real challenge is separating noise from signal. If tokenisation, blockchain-settlement and digital-asset infrastructure continue integrating into traditional finance, then crypto may stop looking like a standalone speculative category and start looking more like another layer of the global financial system. Dare we say – it might just be starting to look like a proven asset.

That does not mean crypto suddenly stops being risky and it certainly does not mean every project succeeds. Volatility, speculation and poor projects are part of every landscape and will be in the crypto space for some time yet; but the broader conversation around risk may need to mature alongside the sector itself.

The real question is no longer whether crypto carries risk because every emerging technology category does. The question is whether the market is still assessing digital assets primarily through the lens of past speculation rather than recognising the infrastructure, institutional adoption and financial integration now steadily developing underneath it all.