2019 – The Inception of the World’s Seventh Asset Class


Disclaimer: I am a Business Analyst not a Financial Advisor, the information provided below is my own personal opinion and should not be taken as financial advice.

Always do your own research.


Background

In 2018 I successfully delivered the replacement for the worlds largest OTC Options Trading Platform. Whilst that project took up the majority of my time, I dedicated every available minute of my spare time (over 1430 hours) to researching and analysing a truly fascinating disruptive technology, one that I am now absolutely confident will, in time, change the lives of the majority of the global population. This article provides some insight into my findings.


What is a Disruptive Technology?

Disruptive technology is an innovation that causes a paradigm shift in an existing market, displacing the status quo. I have been interested in next generation technologies since my early twenties, I distinctly remember spending many hours meticulously editing the ID3 tags [1] of my entire MP3 music collection, eagerly anticipating a device with an interface that could catalogue and search my music files correctly using those tags. Apple delivered the iPod.

The iPod, an example of revolutionary disruptive tech.


The Next Technological Revolution

Artificial Intelligence, Machine Learning and Blockchain technologies are all going to play vital parts in shaping our future. One of these however will change the way we live in a far more substantial way than the other two combined. The largest financial change in our lifetime has already started and is gathering momentum at a truly awe-inspiring and unprecedented exponential rate, a scale never before witnessed in any of the first six asset classes. I am excited to witness the birth of this entirely new asset class, it will be decades before another is introduced. I have had exposure to the first two technologies listed above in my work life and whilst they were very interesting to me, the last one was an enigma. I needed to understand it.


The Original Six Asset Classes

Throughout our lives there have been six asset classes [2] that have controlled the financial world, they are all linked to one another and to the world’s Central Banks.

  • Commodities – Tangible goods from Diamonds and Gold to Oil and Orange Juice
  • Fixed Income – Bonds and the multitude of financial products based upon them Including my personal 20 year field of expertise, derivatives.
  • Equities – The global stock markets
  • Foreign Exchange (FX) – The value of fiat currency [3] from one governments central bank compared to that of another governments central bank.
  • Infrastructure – Energy, airports, rail networks etc
  • Property – Our homes

What is the Seventh Asset Class?

I believe that the seventh asset class is Decentralised Blockchain Cryptographic Currency or “Cryptocurrency” as it is commonly known. I know that some people reading this will let out a sigh and are probably shaking their heads. There are some people who wrongly believe that the Crypto market died in 2018, that Crypto is a fad, that it is the next dot com bubble, that it has no future.

To those people all I ask is for 10 minutes more of your time. Once you learn just a fraction of what I have, you will see what is coming tomorrow as clearly as I see it today.


01:37:43 UTC – 03 November 2008 – The email that Changed the World

Just over ten years ago the enigmatic figure known as Satoshi Nakamoto sent an email [4] which began “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party. The paper is available at: http://www.bitcoin.org/bitcoin.pdf”. That email was the defining moment for this new asset class.


My Research

In September 2017, an ex-colleague told me that she had invested an amount of money in Bitcoin. I, like every other person with access to News, had read stories all year about the huge returns people had made from this mysterious digital coin. Energised by that conversation I decided to begin investigating this phenomenon. As my ex-colleagues and the brokers that I currently work with can attest to, I have a fairly large dose of OCD which, in situations like this, can be somewhat advantageous.

Satoshi’s white-paper was the first white-paper I had read that was related to a type of DLT (Distributed Ledger Technology) [5] called blockchain. It was just nine pages long and I was amazed by it. Whoever had written the document was clearly a genius. The author had described a trustless [6] peer-to-peer [7] payment technology that required no central bank, that can be controlled by no government, a fully decentralised global system that was impossible to corrupt, that became even more secure over time, it was incredible!

In the months that followed I taught myself everything I could about blockchain technology, in order for it to make sense I also had to study and understand cryptographic hash functions [8] to learn the critical differences between the PoW (Proof of Work) versus PoS (Proof of Stake) consensus mechanisms [9].

For me to validate the legitimacy of this new industry I needed to understand how the cryptocurrency market was behaving relative to other asset classes I was more familiar with, I studied Elliott Wave analysis, Candlestick pattern recognition and Fibonacci Retracement, I had not learned enough to be a successful trader but certainly more than enough to enable me to spot trading patterns that are present in the existing asset classes, such as the classic “head and shoulders” [10] or “cup and handle” [11] patterns. Trend momentum indicators such as MACD (Moving Average Convergence Divergence) [12] and EMA (Exponential Moving Average) [13] are just as relevant to Bitcoin and other alternate coins (AltCoins) as they are in the analysis of trading patterns for other asset classes. I was hooked! I decided to dig deeper.


White-paper Analysis

At the time of writing this article I have analysed 177 crypto currency white-papers, some of them for cryptocurrency coins, others for cryptocurrency tokens, there is a distinct difference between the two types [14]. I created a standardised list of variables, which enabled me to filter the noise.

A small percentage are blatantly scams and a large portion of them are interesting ideas but without solid business models to support their growth. However, there are a handful of decentralised public blockchains that I believe are going to change the world in the coming years. I believe that they have the potential to become decentralised internet behemoths worth hundreds of billions, possibly trillions, as they will impact every other asset class. Anthony Pompliano, the founder of Morgan Creek Digital Assets tweeted on 27 December 2018 “An entrepreneur somewhere is building a crypto company right now that will one day be worth $1 trillion”. I agree with him wholeheartedly.

Those of us with the technical aptitude to understand this space will be at a significant advantage until such time as the industry devises a method to make the user interface, and the process around it more simplified. There are many like myself who have been studying this space and strategically investing throughout the last year or more, watching as this asset class takes form. It is truly fascinating.

Blockchain technology will force us to re-write the way we tax and pay for goods and services. It has the potential to completely demonetise fiat currencies globally. Grandiose terms perhaps but a realistic possibility, one that I personally believe is inevitable in the future.


Market Manipulation?

By the time I considered myself “up to speed”, a Bear Market [15] had ensued, in 2018 there were no less than 90 failed attempts to kill bitcoin [16], down from 125 the previous year. High profile influential individuals who worked at well established international financial institutions would unleash a barrage of assaults on cryptocurrency in all its forms. The negative press appeared to come from every direction to flood this new market with negativity. Proponents of this technology would immediately defend the attacks with vigour.

The most interesting aspect of this for me was that departments within the same financial institutions were preparing to open Crypto trading platforms. Some people cried market manipulation, a few branded them immoral, others saw them as people who knew how to take advantage of a business opportunity. What do you think?

There were many people who tried to alleviate the fears, to bolster the crypto community. The term HODL (which some people believe stands for “Hold On for Dear Life”) was used more and more frequently as people tried to reassure each other. The term originated on 18 December 2013, when a nervous investor mistyped “HOLD” multiple times on a Bitcoin Forum. A company called eToro created a fantastic advert around that time which delighted Game of Thrones fans within the crypto community [17].


Institutional Investor Acceptance

On 03 August 2018 the Intercontinental Exchange (ICE) announced in a press release that they were creating a digital asset trading platform. A new crypto exchange called “Bakkt”[18]. The exchange is due to go live in February 2019, pending a final nod from the CFTC.

At precisely 15:00 UTC on New Years Eve the Bakkt exchange tweeted “We are pleased to confirm that we have completed our first round of funding of $182.5 million”[19]. A check of all the investors revealed none other than Microsoft and, as I expected, the Boston Consulting Group, arguably the worlds most influential and powerful strategy consulting firm. Boston Consulting Group advises some of the most powerful companies in the world, including two thirds of the Fortune 500 [20].

Ask yourself this question, if you had just bought part of a crypto trading platform from a well-established entity such as ICE and you also happen to be an extremely powerful consulting firm would you..

a – Advise your clients to prepare to trade crypto assets on the Bakkt exchange at launch, confirming to them that this new asset class is now validated and tenable.

b – Advise your clients that crypto is dead, that it has no future, and it is just a bubble

The answer is obvious!


FAANGS – The Existing Internet Giants

Facebook, Apple, Amazon, Netflix, Google, Samsung

The value of the largest centralised internet tech companies has dropped considerably over the last few months, Apple alone has lost over $400 Billion since its All Time High. The FAANGS ability to innovate has largely been replaced by a culture of acquisition, which technically won’t be possible for Decentralised Applications (Dapps). They continue to demand large percentages of creators revenue (developers, artists, musicians etc) simply for hosting a few files in a centralised data centre powered by free energy from our closest gas giant.

Some of the best technological minds in this industry have already begun moving to the new asset class, as a developer would you rather be paid 70% of the revenue or 100%?

Later this year I imagine Apple and Google will try to stem the losses by incentivising the developers with reduced fees, but will that be enough?

As a musician would you like 100% of the royalties or a fraction of that from existing streaming services? Esports, online marketplaces, all of them are going to change.

Jeff Bezos, the founder of Amazon, said two months ago “Amazon is not too big to fail … In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.” [21]. Apple is 42.

Samsung has realised that a change is coming, why else would they have registered the trademark “Samsung Crypto Wallet” [22] a few weeks ago unless they were planning to build one for a future generation of their devices.

The front cover of the internationally recognised Economist magazine showed a very subtle hint on their view of “The World in 2019”. The image clearly depicts a person holding a smart phone with their Crypto currency QR receiver code on it.


Conclusion

This article is already far longer than I originally intended it to be, and I have much more to say but I’ll leave that for private conversation. I will conclude by saying that I truly believe the future of the Internet will be decentralised. There are already hundreds of Venture Capitalists and Institutional Investors who are injecting billions in to this asset class.

I will leave you to make up your own minds but be certain of one thing, this is just getting started!

Thank you for reading my first article.

Mr Gordon


References

[1] https://en.wikipedia.org/wiki/ID3

[2] https://en.wikipedia.org/wiki/Asset_classes

[3] https://www.investopedia.com/terms/f/fiatmoney.asp

[4] https://satoshi.nakamotoinstitute.org/emails/cryptography/2/#selection-35.3-43.37

[5] https://www.worldbank.org/en/topic/financialsector/brief/blockchain-dlt

[6] https://www.quora.com/What-does-it-mean-that-Bitcoin-is-trustless

[7] https://www.techopedia.com/definition/25777/peer-to-peer-network-p2p-network

[8] https://blockgeeks.com/guides/cryptographic-hash-functions/

[9] https://hackernoon.com/consensus-mechanisms-explained-pow-vs-pos-89951c66ae10

[10] https://www.investopedia.com/university/charts/charts2.asp

[11] https://www.investopedia.com/terms/c/cupandhandle.asp

[12] https://www.investopedia.com/terms/m/macd.asp

[13] https://www.investopedia.com/terms/e/ema.asp

[14] https://www.finder.com/cryptocurrency-coins-vs-tokens

[15] https://investinganswers.com/financial-dictionary/stock-market/bear-market-878

[16] https://99bitcoins.com/category/bitcoin-obituaries/2018/

[17] https://youtu.be/Ihd0moB0ehM

[18] https://ir.theice.com/press/press-releases/all-categories/2018/08-03-2018-133022149

[19] https://mobile.twitter.com/Bakkt/status/1079754096226304002

[20] https://en.m.wikipedia.org/wiki/Boston_Consulting_Group

[21] https://www.theguardian.com/technology/2018/nov/16/jeff-bezos-amazon-will-fail-recording-report

[22] https://trademarks.ipo.gov.uk/ipo-tmcase/page/Results/1/UK00003363431