Read Part 1 if you haven’t already.
I was planning to write today’s piece much later in this series of writings. But there is so much happening in the crypto space that I thought it would be a good time to address it. Let me tell you at the outset the next few writings will appeal to only those who are invested in cryptos or at least interested in cryptos.
When it comes to cryptos the world is very divided. There is no middle ground. Either you like it very much or you don’t like it at all. Why is it that way? There are many reasons for it.
It is a very young asset class. People are not used to such type of volatility as with other asset classes. It has not really gone through any major economic cycles and is still immature. So many are hesitant to be part of it.
Some of the very successful investors in other asset classes like Warren Buffett, Charlie Munger, and Bill Gates have been vocally harsh in expressing their disdain for cryptos. The larger public respects and follow them very faithfully and believes they know better than them and so has formed an opinion that one should not be touching it.
I concur partly with them. Also partly, I believe they are missing one of the generational opportunities to invest in some of the greatest projects at a very ground level. Cryptos come in many forms and shapes. The success of the likes of Dogecoin and Shiba Inu has not done any favors in eliciting serious interest in the crypto sphere from institutional investors. The pump and dump coins are too many and the thrill of trading them appeals to many, especially the younger generation. Many have become unbelievably rich too but we don’t hear much of the sad stories. Greed and recklessness are generally built in the human psyche. Overcoming that requires years of real-life experience and maturity.
I am focused only on utility-based tokens which are value-based. Web 2 was all about the internet of information and Web 3 will be all about the Internet of value. What I am sure of is that of the more than 20,000 cryptos that are in existence, most don’t have value. Once the clearing process starts - which I think is underway - we will be left with a maximum of 100 tokens. Once regulatory clarity is forced into this space most of the existing tokens will bite the dust. Out of the 100, I think about 20 should be really worth investing in.
If you believe in the 4th Industrial Revolution which is actually the digital revolution, then you will be missing out big time if you are not invested in this space. The name crypto actually invokes bad connotations and one should be more focused on the network of payment solution providers. There are not that many good ones in this space. One can count the real viable ones at your fingertips.
The fundamental technology that drives this space is the blockchain. Blockchain is all about removing the middle man. So it is very disruptive to the banking sector. Banks will be forced to accept this technology or they will have to fold up. The leading banks are very scared of what is happening in this space and trying to stay above water.
Banks in general are not innovators. Innovation rarely happens with incumbents. When a new technology has added value or if it is disruptive, banks will study it and make it their own with some small tweaks or partner with a private technology implementor. Bank budgets are mostly spent on marketing, advertising, entertaining, and lobbying.
But these new digital developments have created an existential threat for the banks if they don’t try to find a foothold in the emerging new world order. A classic example is that all the major US banks are fighting hand over fist to get their fair share of the pie. JP Morgan, BOA, and Citi Bank are getting the crypto custody business. From the non-banking sector, we have mainly BlackRock and Fidelity. BlackRock is a behemoth of a company. They have more than 10 trillion dollars worth of assets in their custody. If this was all a fake sector, do you think the banks will compete to get the crypto business? Stay tuned for more.
Go to Part 3.
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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.