I went to Beijing, Shanghai, Shenzhen & all I got was a glimpse of the future
As you guys probably know we’ve been gearing up to list the AMPL token on Bitfinex. And naturally, to spread awareness and connect in person with our community in China, we went on a whirlwind tour through Beijing, Shanghai, and Shenzhen.
Fresh off the heels of this eye opening trip, I can’t help but feel overwhelmed by the level of sophistication surrounding the cryptocurrency markets out in China. Traveling alongside Bitfinex with the assistance of a world-class translator who has worked with the likes of Barack Obama was a huge privilege. It meant we didn’t need to hold back on discourse.
A Major Distinction
One thing that stood out as noticeably different to me was that Chinese enthusiasts seemed to have a much easier time recognizing cryptocurrencies as assets, while out here, most of the top-tier investors view tokens as utilities or placeholders for value creation in some non-monetary domain.
This is a major distinction; one I think we might look back upon as the reason for the rest of the world outpacing the US in the digital-asset markets. I find this curious because the Marxian concept of “use-value” in money has been well studied, and it’s clear that one of the great innovations behind fiat was its lack of “use-value.”
To put it simply, the US dollar would not be a better money if we could eat it (like wheat). This would introduce demand distortions and make supply regulation more difficult than it already is. And let’s not forget that perhaps the most amazing thing about synthetic commoditiy monies like Bitcoin is their ability to marry the absolute scarcity of natural commodity monies with the lack of non-monetary use-value (and low theoretical production costs) typically associated with fiat.
The Primary vs Secondary Market Narrative
In China, there’s a lively and sophisticated debate about the dichotomy between what the Chinese refer to as “primary” market investing and “secondary” market investing today.
Broadly, “primary” market investing is what we would call private round investments, and “secondary” market investing is what we would call public market investments. And it’s clear from the murmurs out there that the business cycle has trended towards public market investments — the mechanics of which are considered incredibly important and evaluated with excruciating detail.
It’s generally viewed that although public market investors can succeed without any knowledge of how to squeeze into exclusive private round investments, private market investors cannot succeed without a strong understanding of public markets. This is another key difference. In China, the elite private round investors are also the elite public market investors.
A first meeting in China would typically begin with a discussion of the mechanics surrounding a given token’s release. What platform will it be on? What is the initial circulating supply? What sorts of lockup and vesting schedules are in place to protect from downward pressure?
After that, it’s all about vision — and I’m not exaggerating when I say that the types of questions we were asked about monetary economics were far more advanced than what folks in the US have ever asked. Not only did they quickly grasp the distinction between theories of banking and theories of money, they understood the profound difference between rules and discretion. Lastly, the Chinese understand commodities. In aggregate, the knowledge-infrastructure there was ideally suited for communicating the unique virtues of the Ampleforth protocol.
I suspect this gap might be due in part to the fact that US citizens take for granted the robustness of the US dollar, what economists call the “exorbitant privilege” of being a global reserve currency.
Easy credit and constant demand for the dollar means we, as citizens of the US, rarely if ever worry about things like inflation. And the system is complex and opaque enough that regular-folks would have to look pretty closely to see the connection between credit asset bubbles and US monetary policy.
Rather than asking about the monetary qualities of a digital asset being launched out here, elite investors in the US are primarily concerned with utility use-cases. Again, this is surprising to me given the valuations today because the more transactional utility a token has, the higher its velocity and the smaller its market cap needs to be in order to support a large economy. In short, the more transactional adoption a project sees, the lower its cap needs to be. Luckily, or perhaps not so luckily, projects today have not crossed this chasm of utility.
Notably in China, the folks we talked to are far more thrilled by the prospect of Bitcoin’s potential to rise amidst a global macroeconomic slowdown than they are by the prospect of a new payments platform. After all, WeChat makes digital payments entirely seamless and is so ubiquitous that we were rarely able to use cash.
Money = Optionality
As Milton Friedman once said, “Money should have no opportunity cost.” The function of money is to grant optionality (by storing value in a media ideally suited for counting and exchanging value). In China, as in most first-world countries, payments is a solved problem— optionality is not.
More than anything, the trip has reaffirmed my belief that the killer use-case for cryptocurrencies has been staring us in the face all this time. It is portfolio construction, plain and simple. Small cap assets in a potentially enormous market that’s uncorrelated with traditional asset groups isn’t just a huge deal, it’s the real deal. Financial engineers have been working on synthetic portfolios for a long time, but never have we seen the likes of Bitcoin’s randomness.
Why is this powerful? Because by sprinkling assets like Bitcoin into a portfolio, investors reduce covariance with other holdings, thus minimizing risk while still retaining exposure to upside returns. Diversification, one of but two commonly employed methods of risk reduction, has seen unrelenting use since the introduction of Modern Portfolio Theory in 1953. It provides optionality.
The road to adoption is well underway. Bitcoin and its ilk are gradually being accepted as mainstream investment assets. To see this, we don’t need to look any further than mobile-friendly applications like Robinhood through which users can purchase Bitcoin as easily as they can Apple stocks. In this light it’s clear the chasm of adoption is already actively being crossed, and our journey can be tracked in realtime increments.
To everyone we met in China, I wish we had more time out there and hope to return soon. I’ll be sure to encourage every US crypto enthusiast I meet to visit and glimpse the future.
Thank you so much,
Evan Kuo — Ampleforth (co-founder)
Thanks to Jessica Yen for her help with this post.