An underlying asset refers to the actual asset that a financial instrument, such as a contract or derivative, is based on. In cryptocurrency, these assets can include various types of digital currencies like Bitcoin or Ethereum, as well as tokens or other blockchain-based assets.For example, in the case of futures contracts, the underlying asset is the digital currency that the contract is tied to. The value of the futures contract is derived from the price of the actual cryptocurrency. If the price of Bitcoin rises, so does the value of any Bitcoin futures.Understanding underlying assets is crucial for investors. It helps them evaluate the risks and benefits associated with trading different financial products, like options or swaps, which may leverage these assets. By grasping the concept of underlying assets, investors can make more informed decisions and engage more effectively with various trading strategies.