“The time to buy is when there’s blood in the streets.” – Nathan Rothschild
“Be fearful when others are greedy, and greedy when others are fearful.” – Warren Buffett.
In the wake of FTX’s collapse, investors are wondering what the future of the digital asset industry looks like. Some fear the worst, and use FTX’s failure as evidence of risk, while myself and many of my peers who believe in the underlying technology see a much different, and possibly not so distinct path that we traveled during the Dot-Com era. Institutional powerhouses are continuing to explore crypto, and remain deeply invested in the space. An opinion piece in the Wall Street Journal from Goldman Sachs CEO, David Solomon, highlights this exact evolution: Blockchain Is Much More Than Crypto.
Speculation to Utilization
Blockchain is on the precipice of a shift from speculation to utilization, where real world use-cases and measurable metrics will drive growth and value across the industry over the hype of certain tokens which unfortunately dominated 2021. If 2020 and 2021 was a building phase, 2022 was the year of speculation.
We need to separate the price fluctuations from the technology advancements blockchain provides the global economy. Peer-to-peer payment systems powered by blockchain are not going away. On-chain transactions and settlement processes to help financial institutions work more effectively are not going away. The promise of tokenization to open up unique investment opportunities and improve market functions are not going away. Despite the price swings in the top cryptocurrencies, people are building more and more than ever before and I expect to see trillions of dollars flow in over the next few years as institutions like Goldman, Fidelity, State Street and more incorporate blockchain technology.
We’ve seen this movie before.
The current phase that crypto and blockchain is in is not unique, in fact, similar periods of turmoil have been felt in almost all technological advances in the past from the boom of the steel and railroad industries to the more recent, and relevant, tech bubble. Generally, what happens is early adopters become heavily involved when a promising new technology with profound implications and value creation opportunities enter the market. People looking to take advantage in the short term throw caution to the wind, paving the way for bad actors to extract gain at the expense of the true believers and unknowing investors.
With this in mind we need to ask ourselves how valuable is blockchain technology, and what is its potential? As I touched on before, we will continue to see industry players pouring investment dollars into this space, and blockchain technology will begin to pop up in every fabric of society.
Looking ahead to 2023:
This is the moment. When Lehman Brothers crashed it didn’t mean that mutual funds investing in equities were to vanish or a mortgage would never be sold again. When Pets.com filed for bankruptcy the internet didn’t go away. Crypto experienced a setback, which can be critical for an industry to evolve. Blockchain utilization will allow it to fix itself. This is where I see the opportunity:
Tokenization goes Institutional
I continue to believe that in the future, tokenization will be the dominant form of how assets are owned whether that be through private equity investments into a business or your own house. On the investment side, tokenization provides democratized access to a range of investment opportunities with increased liquidity and transparency. Institutional players are taking notice and it’s why institutions like BlackRock and StateStreet to the government and countries like Switzerland are exploring the use-cases and benefits of tokenization. Access, liquidity, efficiency, transparency – Tokenization is a game changer and it is only just gaining early majority traction.
The benefits of tokenization are why we launched COSIMO X, our tokenized venture capital fund that has holdings in more than 20 disruptive blockchain companies.
Risk-managed Proof-of-Stake Investing Takes Off
Proof-of-Stake networks are the future and more investors want exposure to the upside of staking and to support networks they believe in. For investors, seeking to support these networks and reap the potential gains over the long term can provide that “get rich slowly” method akin to dividend investing in the equities space. The team at COSIMO Y, backed by a group of experienced portfolio managers, launched one of the only risk-managed digital yield funds that offers a diversified opportunity to a basket of PoS networks.
The volatility of crypto is a problem, however the advancement of institutional-grade derivatives markets, custodians and general investment infrastructure means there is a solution: hedged exposure to the crypto market. The ability to invest in PoS networks with potentially limited downside risk is a major advancement for investors. Now investors have an opportunity to stay in the markets during downturns, accrue tokens through yield and compound their exposure to these networks, allowing them to take advantage of the upside potential these tokens offer. During a down market like the one we are in currently, there is a promising opportunity for long term investors now.
Over the next year, we will see investors and institutions tap into the incredible potential that risk-managed investing in proof-of-stake networks provides.
Decentralized Blockchain Technologies Grow Their Market Share
I believe that truly decentralized blockchain technologies will see growth in their share of the market as investors turn to new opportunities and new technologies in an effort to move past the centralized institutions that dominate the market. While it won’t be without challenge, we are beginning to see utility meet the needs of the early majority jumping into crypto which will only accelerate the adoption of this industry. As I’ve mentioned, institutions will begin to adopt blockchain technology to improve their business functions and operations. At the same time, existing technologies will be advanced such as algo-driven long term stores of value which
Technological advancements such as algo-driven long term stores of value will also grow their market share as investors turn more to decentralized networks with reduced volatility. Ndau is one cryptocurrency that offers this promising technology and has fared well through the stress test of 2022. The decentralized governance and monetary policy capabilities of Ndau allow it to respond to market dynamics in a way that helps regulate the money flow. Beyond that it provides promising yield potential that supports a long term outlook and position.
The overarching theme here is that human error is always possible. We will see a gravitation towards decentralized technologies which execute decisions based on immutable code. The removal of human judgment and error, especially when large financial decisions are involved, will take time to go mainstream, but it is a matter of “when” not “if”.
The Big Picture
In last year’s outlook piece, I ended with “this is the single largest value creation event of our lifetime.” I reiterate that statement and double down on it. Referring to the quotes at the top of this piece, for those with high conviction rarely has there been such an attractive entry point if you are committed to the long term adoption of blockchain and crypto.
The industry is experiencing growing pains the same way the most prominent industries of today did as they expanded. As projects built on purely hype are weeded out, and projects with transformative use-cases take their place, the industry is poised for rapid adoption and expansion. I look forward to 2023, and all of the opportunities that are coming with it.