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Investing in Bitcoin and Crypto in a Brave New World

In 2017 Bitcoin came front and center as either one of the greatest innovations in human achievement or history's biggest scam. The fact is, Bitcoin is an ongoing experiment that is starting to make a foothold in the real world. 

Still even some of the strongest proponent of Bitcoin and cryptocurrencies see a long road ahead. 

Earlier this month, Mike Novogratz predicted that mass adoption of crypto and blockchain is “still five to six years away.” Novogratz said that one of the major obstacles preventing widespread adoption is the increasing “cost of technical talent” as well as the doubts of conventional investors, who are aggravated by “no clear precedent for the financial industry.” (cointelegraph.com)

With some historical perspective however , we should note that 5-6 years is not that long at all. In terms of technological adoption, 5 years is a blink of an eye.

In 2013, Rita Gunther McGrath of the Harvard Business Review noted that "The Pace of Technology Adoption is Speeding Up". 

Let's take a look at the drivers of growth for Bitcoin and Crypto and why we should anticipate adoption to be relatively fast - faster than the internet itself.


Growth Drivers for Crypto in a Brave New World:

1)      Brain power in the crypto space is expanding in size as well as diversity.

a.       Technical talent is increasing as education becomes more accessible and widespread.

i.    Back in 2012, you couldn’t find a book on bitcoin. You might find some esoteric research papers. Basically, if you were on top of bitcoin around this time, you were probably a libertarian, or lucky to have known one involved in bitcoin. 

ii.    By 2016, there were books, and many more research papers. Bitcoin was on the news a lot more. Universities started offering courses. .

iii.    By the end of 2017, the bubble reached the masses. Meet ups have sprung up like wildflower. Online courses on blockchain continue to increase. Even smaller colleges jumped on the bandwagon to offer classes. Now, anyone with access to the internet can learn about the technology.

b.    Digital natives will be relatively more familiar (than the older generations) with coding/programming and can further the development of digital assets. As spending power and wealth shifts towards the younger generation, both development and adoption will likely speed up. Soon, you won't hear the misinformed argument that "bitcoin is made out of thin air." 

c.    Not only will technical talent increase, other areas of expertise are entering this field, i.e. UI/UX programming, marketing, business development. This diversity of talent will help the ecosystem grow and scale up in a more balanced, market-driven way. 

2)      Adaption in a global, network economy will have a sharper trajectory than other innovations in the past i.e. the car, stocks, the internet because of the infrastructure needed is essentially digital. Let’s take a little ride back in time:

a.    The automobile is one of the most important innovations. But it took years for mass adoption because it took years to build out the roads - the infrastructure automobiles. It took further process improvements like Ford’s assembly line to make cars cheap enough for the masses. 

b.    Going back even further, selling shares or stocks to raise capital took a while to become standard practice after the Dutch East Indian Company was founded in 1602, and sold shares of stocks to raise capital to fund its ships and trade expeditions. For the next 200 years, we would see stock market bubbles cripple the development of a sustainable stock market. It was not until 1773, when NYSE was born, that issuing stocks became common practice, and the modern stock market started to take shape.. 

c. The internet now connects the world, breaking down borders and accelerating globalization. (You can also argue that the internet evolved from globalization). But it took almost 30-40 years since it's inception before we got the giants we know now (Amazon, EBAY, Google, Facebook, Twitter etc.). Building out the internet required physical construction of servers, and other network equipment, as well as laying down cable across the Pacific and Atlantic. Remember, the internet is a physical thing, upon which we build digital applications. 

e.    Now comes the digital and crypto assets. The internet allowed people from all over the world to collaborate. The internet is essentially the infrastructure upon which, development of bitcoin and blockchain technology is possible. Note that the devs are not building roads, or laying down cables. They are building protocols and applications that will run on top of the internet. This process does not require government contracts, and immense processes that require factories to be built. This requires coordination, which is enabled by the web. 

Bitcoin was created in 2009, and 9 years later started to suffer from scaling issues. Developers have been working on scaling solutions for a couple of years now, and it might still take a couple more to implement, and another couple to be fully adopted within the existing users.

From a technical and engineering standpoint, we can indeed expect relatively rapid development. But of course, the question remains whether it will be adopted from a legal and social standpoint.

3)    Upcoming regulations, on-ramp services, and financial products will guide traditional investments into this space. 

a.    Without clear regulations, pension funds and other conventional investments will not touch crypto. It is not so much about Bitcoin, but the thousands of other alt coins, many of which raised millions through ICOs. It is like the chicken or the egg at the moment, because the regulatory bodies are NOT in a hurry to regulate crypto, which is relatively a small space. When it gets to $1 Trillion in market cap, we can be sure a handful of agencies will want jurisdiction. This might initially hamper the interest in crypto, but in the long-run, will help on-ramp even more investors into this space. 

b.    Investors will still need trustworthy services to help them navigate into this space even as regulation becomes more clear. The emergence On-ramp and management services as Coinbase and Galaxy Digital is therefore another critical infrastructure development that will help crypto get to mass adoption. 

c.    Finally, creation of different investment vehicles will help traditional investors access this market. In 2017, the first Bitcoin Futures came to be. The next domino to fall will be a Crypto ETF. We can expect this to be the next bull-catalyst in 2018/2019. 

4)    Millennial and Gen Z investors are not interested in traditional investment vehicles. This group of investors will put a larger piece of their pie into crypto. 

You probably have heard that the Millennial and younger generations do not invest into the stock market. But the truth is, they don't invest, period. 

After the great depression, we also had a generation hesitant to invest. The Dow Jones industrial average didn't get back to its 1929 peak until more than 20 years later. 

Why Invest? - Still Early

So, traditional investors are not in this space, and the younger generations are not investors yet. The entire cryptocurrency market is under $300 Billion (7/29/2018). You have 10 companies like Amazon and Apple that have a bigger market cap.

With the adoption curve likely sharper than previous technologies, and with massive amounts of investment waiting to be deployed, Bitcoin and cryptocurrencies are still in for a few more bullish waves before they become standardized and adopted.  

 

State of Bitcoin & Crypto Mining - August 2018 Report

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