Are You Too Late to Crypto?

The recent run-up in digital asset prices may have some crypto-curious investors feeling like they missed their entry opportunity. Bitcoin is up ~50% YTD and ~135% over the trailing one-year period.

However, zooming out to observe the transformative nature and relatively small current utilization of blockchain technology (vs. the performance of any single asset built upon it) reveals just how much of crypto’s potential economic impact remains untapped.

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Separating Blockchain from Bitcoin

Investors focusing only on Bitcoin’s current price appreciation and its potential economic impact (while substantial) are looking past the fundamental driver of crypto’s value proposition to the broader global economy: blockchain technology. The blockchain’s use cases for powering transactions and broader interactions with information far surpass that of any single asset, with the potential to increase efficiency in a variety of industries. Figure 1 puts in perspective the sheer size of the market opportunity for crypto by pinpointing areas particularly well-suited for blockchain innovation:

Figure 1: A Comparison of Asset Valuations

The industries and assets ripe for blockchain-driven efficiencies represent a staggeringly large and diverse set of fundamental use cases. Let’s dive into a few representative examples:

Financial Services: the value proposition for decentralization in financial services covers asset management, trading, insurance, payments, and more.

Entertainment and Gaming: Decentralizing content distribution, improving royalty payments, and providing secure in-game monetization are just a few of the entertainment– and gaming-related uses of blockchain technology.

Information Technology Infrastructure: Secure, decentralized, and distributed data and computing power offer more efficient and connected infrastructure solutions for technology-enabled businesses.

Fixed Income: Earlier this month, tokenized U.S. Treasuries surpassed the $1B mark, signaling an early milestone for the real world asset (RWA) tokenization movement across asset classes.

Real Estate: Smart contracts fit very cleanly with a variety of real estate use cases, including transfer of ownership, recurring rental payments/yield, and financial derivatives. Smart contracts used in this way could disrupt many industries where intermediary brokers stand between buyers and sellers.

Value Storage and Transferability: The classic Bitcoin value proposition—native crypto characteristics (portability, divisibility, scarcity, etc.) lend themselves well to mirroring gold or fiat currencies as a store of value.

Conclusions for New (and Old) Crypto Investors

Instead of asking themselves, “Did I miss my chance?” potential digital asset investors should ask, “Do I believe in the transformative nature of blockchain technology?” Investing in digital assets should represent a belief in the far-reaching value proposition of blockchain technology, ranging from the variety of industries that comprise the macroeconomy to the transactions that encompass everyday markets and human experience.

A thoughtful multi-asset approach to portfolio construction and ongoing management is crucial to ensuring crypto investors capture the full value proposition of blockchain innovation.

Edited by Benjamin Schiller.

 

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