Crypto Riches for Investors - Part 2
Abraham George Crypto Musings
Read Part 1, if you haven’t already.
If you have been in the markets for more than 25 years, you surely would have experienced the dot-com boom, bubble, and bust. If you came into the markets recently, I highly recommend that you look it up and study it.
The current structure of the crypto markets is eerily analogous to the dot-com market. You have seen nothing unless you lived through the dot-com period. There were companies making 100% or more returns every day. It was all pump and dump. With cryptos too we see the same patterns.
You go to places like Miami or even Dubai young kids without much education or trading experience are making insane amounts of money. They are all part of cabal-like networks working on hyped-up projects that make no economic sense but are able to profit for themselves. They are digital natives, tech-savvy and many excel at video games. In a world of faceless trading, they are successful for a period of time until the losers give up on the project. By this time the successful ones have moved on to a new project to outsmart (fool?) the unsophisticated public again.
This sort of wealth accumulation is not sustainable for long. Most of them will also lose everything that they have gained due to the new extravagant lifestyles and commercially unsound ventures. I think that there are more than 19,500 crypto projects in the market now. Once regulations come and most projects will run out of money, I assume there will be about 100 projects that will stay in business. Some good projects who are unable to stay on or raise money will merge with the bigger ones too.
During the dot-com period, the big names were Netscape, Napster, Pet.com, and Yahoo to name a few. Most of these don’t even exist now. Out of that rubble, emerged the Google, Facebook, Amazon, Netflix, Apple, Nvidia, and AMD of today.
Very similar things will happen in crypto as well. Currently, two cryptos dominate the space in terms of market cap, publicity, and clarity from the SEC. They are Bitcoin and Ethereum. Both these coins have gained mass adoption. They have gained in value as well.
Ethereum was created in 2015. It is also a decentralized, open-source blockchain, but it allows for smart contract functionality. Smart contracts will enable you to automate certain legal or financial agreements through a transaction protocol that executes the agreement automatically. It is now the second-largest cryptocurrency by market capitalization. How Ethereum rose to its current status is questionable. The attached video should throw you some light.
We will be focused on projects only with long-term applications that will have a global impact. It will be disruptive to the status quo. They will likely be utility tokens with valid use-case(s).
When something potentially disruptive emerges, first the incumbents will dismiss it as a passing fad. If the incumbents see that the new thing is gaining traction, they will then try to fight it. Finally, they will embrace or accept it. JP Morgan’s Jamie Dimon is a classic example of this reactionary evolution.
Finally, let me leave you with this piece that was posted in the Daily Mail in Dec 2000.
“ The Internet may be a passing fad for many users, according to a report. Researchers found that millions were turning their back on the World Wide Web, frustrated by its limitations and unwilling to pay high access charges. They said that email, far from replacing other forms of communication, is adding to an overload of information. Experts from the Virtual Society, which published the report, said predictions that the internet would revolutionize the way society works have proved wildly inaccurate.”
After more than 20 years, we can all laugh about this. In the same way, there is a lot of FUD (fear, uncertainty, and doubt) being created about cryptos. Stay tuned!
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is a co-founder of a new hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.