Burniske and Tatar provide a framework for evaluating cryptocurrencies as a new asset class, classifying them into cryptocurrencies, crypto-commodities, and crypto-tokens.
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Key Concepts from Cryptoassets
Cryptoasset Taxonomy: Understanding cryptoassets can feel overwhelming when you're first diving into the digital asset world. In their groundbreaking book "Cryptoassets," Chris Burniske and Jack Tatar provide a simple yet powerful framework that cuts through the complexity: the cryptoasset taxonomy. This classification system organizes the vast landscape of digital assets into three distinct categories based on their primary function and economic purpose.
The first category, cryptocurrencies, represents digital money designed to facilitate transactions and store value. Bitcoin stands as the most recognizable example, functioning primarily as a decentralized digital currency that can be used for payments or as a store of wealth. These assets aim to replicate or improve upon traditional money's core functions: medium of exchange, unit of account, and store of value.
Crypto-commodities form the second category, representing digital assets that power decentralized computing networks and applications. Ethereum's Ether (ETH) exemplifies this category perfectly – it's not just digital money, but fuel that powers smart contracts and decentralized applications on the Ethereum blockchain. Think of these assets as the "oil" that keeps blockchain networks running, providing computational resources, storage, or bandwidth.
The third category, crypto-tokens, encompasses digital representations of goods, services, or rights within specific ecosystems. These might include utility tokens that grant access to platform services, security tokens representing ownership stakes, or governance tokens that provide voting rights in decentralized organizations. For instance, a gaming platform might issue tokens that players can use to purchase in-game items or access premium features.
This taxonomy matters tremendously for investors because each category carries different risk profiles, valuation methods, and investment considerations. Cryptocurrencies might be evaluated based on monetary economics principles, while crypto-commodities require understanding network usage and computational demand. Crypto-tokens need analysis of their underlying utility and ecosystem adoption. By categorizing assets correctly, you can apply appropriate investment frameworks, better assess risks, and make more informed portfolio decisions rather than treating all cryptoassets as identical speculative investments. (Chapter 5)
Fundamental Valuation: When evaluating traditional stocks, investors look at revenue, profits, and market share. But cryptoassets operate differently—they're not companies, they're digital networks with their own unique value drivers. Fundamental valuation for cryptoassets means assessing the underlying health and potential of these networks by examining three critical factors: how useful the network actually is, how actively it's being developed, and how well its token economics are designed.
Network utility is perhaps the most important piece of the puzzle. A valuable cryptoasset should solve real problems and attract genuine users, not just speculators. For example, Ethereum's value proposition lies in its ability to host smart contracts and decentralized applications—you can measure this utility by tracking active addresses, transaction volumes, and the total value locked in its applications. If a network claims to revolutionize finance but has minimal real-world usage, that's a red flag regardless of its marketing hype.
Developer activity serves as a leading indicator of a project's long-term viability. Unlike traditional companies where you might analyze management teams, crypto projects rely on open-source development communities. You can assess this by checking GitHub repositories for code commits, the number of active developers, and the frequency of updates. Bitcoin, for instance, has maintained consistent development activity for over a decade, with hundreds of contributors continuously improving its security and functionality.
Token economics—or "tokenomics"—examines how the digital asset is designed to capture and distribute value. This includes understanding the token's supply schedule, inflation rate, and how it's used within the network. A well-designed token should align incentives between users, developers, and investors. For example, tokens that are required to pay transaction fees or participate in network governance tend to have clearer value accrual mechanisms than those that serve no functional purpose.
The key takeaway is that fundamental analysis in crypto requires a different lens than traditional investing. Instead of quarterly earnings reports, you're analyzing network effects, technological progress, and economic design. While this approach takes more effort than simply following price charts, it helps you distinguish between genuine innovations with long-term potential and speculative bubbles destined to burst. Remember, sustainable value in cryptoassets ultimately comes from networks that people actually want to use. (Chapter 10)
Portfolio Allocation: When most investors think about diversification, they focus on spreading their money across different stocks, bonds, and maybe some real estate. But here's where cryptoassets become particularly interesting from a portfolio perspective: they often move independently of traditional markets. This low correlation means that when your stocks are tanking, your crypto holdings might be stable or even rising, and vice versa.
Think of correlation like a dance partnership. When two assets are highly correlated, they move in lockstep like synchronized dancers – when one goes up, the other follows. Traditional assets like stocks and bonds sometimes move together during market stress, which can hurt diversification when you need it most. Cryptoassets, however, often march to their own beat, driven by different factors like technological adoption, regulatory news, or shifts in digital asset sentiment.
Here's a practical example: During the COVID-19 market crash in March 2020, the S&P 500 plummeted about 34% from its peak. While Bitcoin initially fell alongside stocks, it recovered much faster and actually ended 2020 up over 300%. An investor with a small allocation to Bitcoin – say 5-10% of their portfolio – would have seen those crypto gains help offset some of their traditional asset losses. This is diversification working as intended.
The key insight from Burniske and Tatar's research is that even a small allocation to cryptoassets can potentially improve your portfolio's risk-adjusted returns. You don't need to bet the farm on crypto to benefit from its diversification properties. A modest 5% allocation can provide meaningful diversification benefits while limiting your exposure to crypto's notorious volatility.
The takeaway isn't that crypto is a magic bullet for portfolio problems, but rather that its unique risk and return profile can complement traditional investments. As with any asset class, the key is finding the right allocation size that matches your risk tolerance and investment goals while harnessing the diversification benefits that come from low correlation with conventional assets. (Chapter 13)
Network Value: Think of network value like a bustling city – the more people, businesses, and infrastructure it has, the more valuable it becomes. In the world of cryptoassets, network value represents the fundamental worth that emerges from the ecosystem surrounding a blockchain or cryptocurrency. This value isn't just theoretical; it's driven by three critical pillars: the users who adopt and transact on the network, the developers who build applications and improve the protocol, and the diverse applications that solve real-world problems.
Network value matters tremendously for investors because it provides a way to evaluate cryptoassets beyond pure speculation or technical analysis. Unlike traditional assets where you might look at revenue or physical assets, cryptocurrencies derive their worth primarily from network effects – the phenomenon where each additional user makes the network more valuable for everyone else. When you're considering an investment in a cryptoasset, examining the health and growth of its underlying network gives you insight into its long-term sustainability and potential.
Consider Ethereum as a prime example of network value in action. The platform started as a smart contract blockchain, but its value has grown exponentially as developers built thousands of decentralized applications (DApps) on top of it – from decentralized finance (DeFi) protocols to non-fungible token (NFT) marketplaces. Each new application attracts more users, which in turn attracts more developers, creating a virtuous cycle. The network's value isn't just the sum of ETH tokens; it's the combined worth of all the economic activity, innovation, and utility flowing through the ecosystem.
Smart investors look for cryptoassets with strong network fundamentals rather than chasing quick price movements. This means researching metrics like daily active users, developer activity on platforms like GitHub, transaction volumes, and the diversity of applications being built. A network with consistent growth in these areas often indicates genuine utility and adoption, which tends to support long-term value appreciation better than hype-driven price spikes that lack substance.
The key takeaway is that network value transforms how we think about cryptocurrency investing – it shifts focus from short-term price speculation to long-term ecosystem health. When evaluating any cryptoasset, ask yourself: Is this network solving real problems? Are developers actively building on it? Are users actually engaging with it regularly? The answers to these questions will give you much better insight into an investment's potential than price charts alone. (Chapter 8)
Risk Management: When it comes to cryptocurrency investing, risk management isn't just helpful—it's absolutely essential for survival. Unlike traditional stocks that might swing 5-10% in a day, cryptocurrencies can easily move 20-50% or more within hours, making them some of the most volatile assets you can invest in. This extreme volatility means that without proper risk management, even the best investment thesis can be wiped out by poor timing or oversized positions.
Position sizing is your first line of defense against crypto's wild price swings. The golden rule here is never to invest more than you can afford to lose completely—and for crypto, many experts recommend limiting your exposure to 5-10% of your total investment portfolio. Think of it this way: if you have $10,000 to invest, putting more than $500-$1,000 into crypto might expose you to devastating losses that could derail your entire financial plan.
Dollar-cost averaging (DCA) is particularly powerful in the crypto space because it helps smooth out the impact of extreme volatility. Instead of trying to time the market—which is nearly impossible with crypto's erratic movements—you invest a fixed amount at regular intervals regardless of price. For example, rather than investing $1,200 all at once in Bitcoin, you might invest $100 every month for a year, automatically buying more when prices are low and less when they're high.
Consider Sarah, who decided to invest $2,400 in Ethereum in early 2022. If she had invested it all at once when ETH was around $3,000, she would have watched her investment lose significant value as prices dropped throughout the year. However, by dollar-cost averaging $200 monthly, she purchased ETH at various price points—some high, some low—ultimately achieving a much better average price and reducing her emotional stress along the way.
The key takeaway is that successful crypto investing isn't about picking winners or timing the market perfectly—it's about managing risk so you can stay in the game long enough to benefit from the technology's potential growth. By keeping position sizes reasonable and using dollar-cost averaging, you protect yourself from the emotional and financial damage that crypto's volatility can inflict while still participating in the asset class's long-term potential. (Chapter 14)
About the Author
Chris Burniske is a venture capitalist and blockchain analyst who gained prominence as one of the first analysts on Wall Street to cover cryptocurrencies and blockchain technology. He previously worked at ARK Invest, where he led cryptocurrency research and helped establish the firm's expertise in digital assets. Burniske is widely recognized for his analytical framework for valuing cryptoassets and his early institutional adoption of blockchain investment strategies.
Jack Tatar is a financial advisor, author, and educator with over 25 years of experience in investment management and financial planning. He has written several books on investing and personal finance, focusing on making complex financial concepts accessible to mainstream investors. Tatar specializes in alternative investments and has been instrumental in educating retail investors about emerging asset classes.
Together, Burniske and Tatar co-authored "Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond" (2017), which became one of the most influential books on cryptocurrency investing. Their combined expertise—Burniske's institutional blockchain analysis and Tatar's retail investment education—established them as authoritative voices in the digital asset space during the early years of cryptocurrency mainstream adoption.
Frequently Asked Questions
What is the cryptoassets book by Burniske and Tatar about?
The book provides a comprehensive framework for understanding and evaluating cryptocurrencies as a legitimate new asset class. Burniske and Tatar classify cryptoassets into three categories: cryptocurrencies, crypto-commodities, and crypto-tokens, offering investors practical guidance for valuation and portfolio integration.
How do Burniske and Tatar classify different types of cryptoassets?
The authors use a three-part taxonomy: cryptocurrencies (like Bitcoin for payments), crypto-commodities (like Ethereum for computing power), and crypto-tokens (representing ownership or access rights). This classification system helps investors better understand the fundamental purpose and value proposition of different digital assets.
What valuation methods does the Cryptoassets book recommend?
The book introduces fundamental analysis techniques specifically adapted for cryptoassets, focusing on network value and utility rather than traditional financial metrics. The authors emphasize evaluating the underlying network's adoption, transaction volume, and long-term viability as key valuation drivers.
How much should I allocate to cryptoassets in my portfolio according to the book?
Burniske and Tatar suggest treating cryptoassets as a distinct asset class that can provide portfolio diversification benefits. They recommend starting with small allocations and emphasize the importance of proper risk management given the high volatility of crypto markets.
Is Cryptoassets by Burniske and Tatar good for beginners?
Yes, the book is designed to be accessible to both newcomers and experienced investors interested in understanding crypto markets. The authors provide foundational concepts while also offering sophisticated analytical frameworks for evaluating digital assets.
What are the main investment strategies in the Cryptoassets book?
The book focuses on fundamental analysis and long-term investment approaches rather than trading strategies. The authors emphasize understanding network effects, technological adoption, and the underlying utility of different cryptoassets when making investment decisions.
When was the Cryptoassets book published and is it still relevant?
The book was published in 2017, making some specific examples dated, but the core analytical framework remains highly relevant. The fundamental principles of cryptoasset classification and valuation methodology continue to be applicable to today's evolved crypto market.
What is network value in cryptoassets according to Burniske and Tatar?
Network value refers to the worth derived from the size, activity, and utility of a cryptoasset's underlying network. The authors argue that unlike traditional assets, cryptoassets derive value primarily from network effects and user adoption rather than cash flows or physical assets.
Does the Cryptoassets book cover Bitcoin and Ethereum specifically?
Yes, the book uses Bitcoin and Ethereum as key examples to illustrate their taxonomy and valuation frameworks. Bitcoin is presented as a prime example of a cryptocurrency, while Ethereum exemplifies a crypto-commodity that provides computational resources.
What are the main risks of cryptoasset investing discussed in the book?
The authors emphasize extreme volatility, regulatory uncertainty, and technological risks as primary concerns for crypto investors. They stress the importance of position sizing, diversification within crypto holdings, and maintaining a long-term perspective to manage these inherent risks.