Comparative investment efficiency of the new asset class on the digital economy

The past decade has witnessed explosive growth for the digital economy and a significant increase in the provision of decentralised services in financial markets. The most dominant segment is decentralised investments through digital currency, peer-to-peer lending and initial coin offering (ICO). While the new economy opens a significant opportunity for financial inclusion and minting a new cohort of digital millionaires, it also poses a serious challenges due to regulatory uncertainties and performance risk due to power failure, digital fraud, and hacking. Despite the mentioned risk, some anecdotal evidence suggests the possibility of higher returns on investment using crypto assets compared to traditional indexed financial asset classes.

This study uses selected asset classes in the emerging digital economy and explores their investment efficiency compared to standard indexed asset classes in the financial market. We focus on peer to peer lending, digital currency, and initial coin offering (ICO) as selected asset classes. We used the publicly available data on peer-to-peer lending from South Africa and Canada. The data were sourced from coinmarketcap.com, a website dedicated to tracking cryptocurrency market cap rankings. The ICO calendar was from the tokenmarket.net exchange, and additional data were obtained from various financial exchanges. We restricted our analysis to the first quarter of 2017 because of data availability and quality during that period. Data Envelopment Analysis (DEA) was used to estimate investment efficiency scores. The findings offer significant insight for digital entrepreneurs, regulators, and financial institutions.

Key Words: Peer to peer lending, digital economy, crypto currency, initial coin offering