The Long-Term Prospects of Crypto

Hi everyone,

I feel that being in the middle of a bear market, this is actually the best moment to focus on the fundamentals of the crypto space and try understand together the long-term implications of what is unfolding on a daily basis.

Everything is moving rather quickly and opinions will keep changing but if we zoom-out for a moment, I would like to go through what is happening from a larger perspective, disentangled from news that overflow us and are sometimes not actually benefitting our strategy/approach to crypto investing.

This Whole Crypto Revolution Has A Binary Outcome

When looking at Bitcoin and other crypto assets covering the various use cases, I would point out that (as opposed to stock investing) there are only two outcomes: (i) Bitcoin and crypto reach a sufficient network effect and become proactively adopted by institution and retail individuals (ii) Bitcoin don’t succeed in this revolution and will be regarded as a failed attempt by a global community. If this is true then crypto is either going to zero or to something much higher than the current USD 226 bn and probably more in the region of other major asset classes (gold as an asset class is valued at approx. USD 7,000 bn).

Downside Is Known While Upside Is A Multiple Of The Current State

With downside I mean the all-in cost that we are risking by following the development of the crypto market. All-in costs should include not only your direct investment but also the time, effort and opportunity-cost of following the market. The good news is that downside is quantifiable and you can actually get a sense if you can afford to lose the money (and time) that you are investing.

At the same time, upside is really a once in a lifetime bet. If this actually turns out shaping the world’s future then… you probably should start increasing your exposure in any way possible as the opportunity is here.

Mainstream Media Is Not Representing Everything And People Are Generally Under-Informed About Crypto

By talking to people and listening to the general media, I believe the average person is generally under-informed and mis-informed about crypto. As you probably know, every day something new comes out: a new real-world partnership, a new token, institutional investing, exchanges announcing developments, etc. It is honestly hard to keep up-to-date with all the newsflow and average people don’t actually have the time for this. People following mainstream media probably get 1% of crypto-related news which is also usually presented with a negative connotation. No wonder why people is not grasping the significance of decentralization! Mainstream media and the status-quo clearly don’t like this whole crypto revolution as it is shaking the very foundation of a society that was designed and intended to work as it is working right now: with a thriving centralized infrastructure delivering excellent results (profits!). This is not bad per se as big business helped raising the living standards of billions of people.

The Unintended Consequences

The problem arises when we realise that the competitive landscape is actually favoring certain economic agents: (i) low interest rate environment is helping big corporates with privileged access to capital markets, (ii) taxation is skewed against retail individuals, (iii) the asset management industry is skewed against retail individuals, (iv) regulation favors large corporates since they have better economies of scale to cope with compliance and regulatory costs, (v) central banks are distorting financial markets by buying bonds on the open market, dislocating capital and artificially lowering interest rates, (vi) thanks to the low-interest environment corporations are able to buy, with the help of cheap debt, emerging and disruptive companies therefore reducing competition and favoring oligopolies.

Cypto-economics really turns the whole process upside down by switching the focus from an owner-centric business model to a community-driven business model.

My intention for the future would be to dive deeper into the topic of crypto-economics and token valuation. Unfortunately, all valuation methods that I studied and applied to my professional career does not hold true for crypto and a novel approach to valuation is much needed. Therefore I look forward to engage with anyone willing to share some thoughts on these topics with the aim of better navigating together this upcoming revolution.

Cheers,
MarketWatcher