The Evolution of FinTech
by Dr. Chris Kacher
Riding the Revolutionary Rocket with Cryptotechnologies… Entirely Evolutionary™
The Birth of Blockchain
History is no stranger to banking and financial sector crises. Tens of millions of people around the globe lost their jobs or their homes as a result of the 2008 financial crisis. Blockchain enables less reliance on centralized institutions, thus can help build a more resilient financial sector. Centralized intermediaries, ie the “middlemen”, concentrate risks and while collecting significant economic rents. Current methods for clearing and settling transactions remain costly with many reconciliations and counterparty risks.
One study showed for the top ten banks alone, blockchain infrastructure could reduce costs by 30%, translating into savings of between $8 and $12 billion. Of course, such infrastructure could be applied to all institutions within the financial system. This savings, however, does not account for additional savings from opportunity cost. Capital gets locked up from typically two days to weeks, depending on the asset class, until the trades are settled.
FinTech Ushers in Fractional Ownership
The reliability of blockchain technology enables fractional ownership via a highly efficient distribution of value while greatly enhancing liquidity in what has traditionally been a fairly illiquid market. In the case of real estate, multiple investors can own a piece of real estate, some land, an apartment, or an entire apartment complex. Of course, this analogy can be extended to hard assets of all types.
Blockchain provides a solid foundation where a far more efficient capital employs real banks, real attorneys, and real accountants all working together on a far more efficient platform. Indeed, a recently published paper from MIT, “The Impact of Blockchain Technology on Finance: A Catalyst for Change” stated, “Many financial services-related blockchain or DLT [distributed ledger technology] projects are justified on the basis of cost savings and efficiency gains.”
Tokenization Answers QE Fiat Debasement
Companies that tokenize assets bring a key alternative to the market by allowing retail money to invest in formerly illiquid areas in the form of liquid, tradeable, tokenized assets such as real estate while reducing or eliminating many front and back end costs as well as increasing efficiencies. Tokenization converts the rights to an asset into digital tokens which are stored and managed on the blockchain. Such tokenized assets are in formation as I type but regulations must catch up to the technology of tokenization so major exchanges can start listing the tokens thus securing sufficient liquidity.
Renowned Wall Streeters such as Ray Dalio who runs the world’s largest hedge fund at Bridgewater recently spoke of a major paradigm shift that is occurring in terms of where to invest one’s capital. While he accurately assessed “cash as trash” in this era of currency debasement, he may not have a deep understanding of how hard assets can be tokenized by way of vehicles such as STOs, an acronym for security tokens but are actually tokenized securities, and why they will be in such demand. Dalio makes no mention of such a possibility in what he has published.
The value of an STO will be determined by its underlying hard asset whether it is real estate, gold, a stock, a collectible, and so on. Tokens rise in value as fiat debases because the underlying asset is scarce, ie, there is no “printing” going on when it comes to real estate, gold, bitcoin, or collectibles.
As a sidebar, bitcoin’s relentless rise is a consequence of its value vs. all forms of fiat. Governments have tried to ban it, but to no avail. Bitcoin has become a firm part of the internet’s DNA. While it is not the ideal store of value or medium of exchange due to its volatility, one must remember bitcoin is still relatively new thus acts like a brilliant teenager with extreme mood swings at times but with limitless potential. Millions have used it to rescue their savings from quickly depreciating currencies in countries such as in Venezuela and Argentina. Others are using it for remittance purposes so money can be sent back to relatives in various third world countries where banking infrastructure is lacking. Roughly 3 billion in the world remain unbanked or partially banked. This is a tremendous tailwind that will help push the value of bitcoin to new highs once again.
That said, STOs are a massive part of the paradigm shift. Fresh capital should migrate into STOs as they become available. Meanwhile, capital should flow out from fiat while it continues to depreciate. The same holds true for bonds whose yields are not just at or near historical lows but are heading even lower. As central banks print more money, the bonds get paid back in currency that carries less value.
As a consequence, in this Era of QE, what the capital asset pricing model suggested were relatively risk-free investments such as savings accounts, CDs, and government bonds such as treasury bills no longer holds true.
Hard assets include the following:
• Precious metals
• Real estate
• Stocks which serve as the new alt-currencies as central banks are often the majority shareholders
• Collectibles
All of the above can all be tokenised. All have enjoyed a general rise in value since QE started in late 2008 to address the financial collapse of that same year. All shall continue to move higher in what could turn out to be a near endlessly expanding debt bubble.
A Tidal Wave of Tokenisation
A tidal wave of tokenised hard assets is on the horizon. The ex-CEO of NASDAQ said all stocks will be tokenized in 5 years. Given that stocks are valued at around $70 trillion, this is a material transformation. We also have $228 trillion in real estate, some of which will be tokenized.
Furthermore, the number of far more efficient and cost-effective decentralized blockchain-based technologies that are coming online will displace the conventional ones because of the material economic advantage. The blockchain space which currently has a total valuation of around $220 billion is looking at an exponential rise in value in the coming years. This bodes well for vehicles such as bitcoin and ethereum. Both trade as ETNs under the symbols GBTC and ETHE. Utilizing logical buy and sell principles detailed in our books and articles on Selfish Investing have so far worked well as we were one of the first if not the first to issue a buy signal on GBTC on March 1 of this year when sentiment was still bearish then a more comprehensive report was sent to members on March 24.
Regulations must hurry up so exchanges can list tokens which will open doors to retailers whose savings are no longer safe especially in countries with near zero or negative yielding accounts as accelerating levels of QE lowers the value of all fiat currencies against hard assets.
In a recent piece, I wrote about four possible scenarios, at least one of which is likely to materialize. In this world of fiat debasement, traditional and tokenized hard assets will benefit. That said, tokenized hard assets whose underlying value is tied to the hard asset such as real estate would represent solid reward with minimal volatility. The underlying asset can reap capital gains and yields as the asset price increases spurred on by the debasement of fiat.
HanseCoin et al
There are a few companies on the bleeding edge such as HanseCoin that are tokenizing hard assets. HanseCoin’s tokenized securities are the next storehold of wealth in a world of fiat debasement and negatively yielding debt. Founded in 2018, HanseCoin is the first regulated company to target the EUR 50+ billion in construction equity projects starved for funding due to onerous regulations such as MiFID which decimated the closed end fund market.
This effectively addresses fiat debasement via the global money printing epidemic. Savers are no longer safe as traditionally low-risk places to store or invest savings push toward zero or even negative yield-bearing levels. HanseCoin brings mass adoption to investing by bringing liquidity into areas formerly reserved for sophisticated high net worth investors. This levels the playing field between the typical saver and the more sophisticated private equity investor while addressing populism which is at levels not seen since the 1930s.
Blockchain-based Software Innovation
HanseCoin is creating the software which will drive innovation in the tokenisation space. The software can hold a broad spectrum of applications such as audited token code or smart contracts. A smart contract is an agreement between two people in the form of computer code, essentially a set of if-then rules. They run on the blockchain so are stored on a public database that cannot be changed. The transactions that happen in a smart contract are processed by the blockchain, which means they can be sent automatically without a third party thus eliminating the costly middlemen. By way of analogy, blockchain is the higher order terrain, software is the engine, and tokens are the oil.
HanseCoin’s blockchain technology brings liquidity and efficiency into even illiquid markets while enabling both retail and institutional investors to participate in fractional ownership. Tokenized real estate on the blockchain is just the ice cube on the iceberg. The economic advantage is massive.
As a consequence, front and back end fees are reduced substantially without requiring capital lock up. For example, in the ship building industry which typically requires a capital lock-up of several years, fees can be reduced from 25.5% down to 4% by removing many front and back end costs. In other areas such as construction equity, total fees on capital raise are also significantly reduced. As one of numerous examples, MiFID regulations in Germany have starved projects of much needed development capital to the tune of roughly EUR 20 billion.
Endless Queue of Projects
Indeed, developers in newly thriving cities such as in Finland, Estonia, Poland, and parts of Asia are interested in onboarding their real estate development projects onto capital raise platforms using blockchain technology. HanseCoin currently has vetted well over 50 such projects in the queue waiting to use its tokenization engine for capital raise. The savings that results is then passed onto all parties involved from the buyers to the sellers to the investors.
Conservative investors and savers will find solace in the availability of such tokenized securities as a superior alternative to near zero to negative yielding bonds and savings accounts. Indeed, with rates heading lower, Germans and other saver nations are set to move some of their trillions in savings into more positive yielding investments. HanseCoin’s use cases offer greater yields at lower risk.
Ray Dalio’s Projections
Dalio has been quoted on the following timely statements:
• “I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the ‘big squeeze”.’
• “There will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots.”
• “In such a world, storing one’s money in cash and bonds will no longer be safe.”
• “It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system.”
A paradigm shift is occurring. HanseCoin brings an evolutionary and necessary alternative to the market by enabling a broad spectrum of investors and savers to put capital into liquid, tradable, tokenized assets with superior yields. The renowned angel investor Naval Ravikant as well as Ray Dalio would agree. Ravikant said 2 years ago that 90% of jobs on Wall Street in their current form will be gone in 7 years. Transform or die. Survive and thrive.
by Dr. Chris Kacher of Hanse Digital Access, KJA Digital Investments and Virtue of Selfish Investing
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