I Have Already Seen This Movie!

When I talk to people from outside the Crypto industry, I often say: “I feel like I’ve already seen this movie!”. That is to say, that there are uncanny parallels to how things are now in Crypto to how they were in the early days of the internet. What I mean is, there is the same scepticism, excitement, experimentation, and wild price swings as in the early internet days….. I know…. because I was there!

Another parallel was the widespread lack of understanding of how powerful and transformative internet technology actually was. Fast forward to today and there is again the same lack of appreciation amongst those outside the sector of Crypto’s truly transformative growth potential.

You see, although the Crypto bear market was savage, the growth in Crypto use cases and adoption continued regardless…..exactly as was the case around the time of the dotcom crash.

With hindsight, it’s clear now that falling prices last time round didn’t mean the end of the amazing prospects the internet had.

Company Failures in Context

Last year’s bear market led to a number of spectacular Crypto company failures and backruptcies. But again, this is very much par for the course at an early stage of an industry. New companies trying new ideas, many of which don’t go on to be successful. Let’s take a brief tour of history to show you what I mean.

Think about the early days of the internet. After the dot-com crash of 2000 and high-profile blow-ups like Pets.com, many in the mainstream media called the internet a “passing fad.” And they were all wrong. The internet became one of the most transformational technologies in history.

So what happened at Pets.com?

Pets.com was without doubt one of the most spectacular failures of the dotcom crash. It holds the dubious title of being one of the quickest journeys from IPO to insolvency.

Pets.com was based on an Amazon-style internet purchasing system where users ordered pet supplies from the website and the company arranged the delivery. During the dot-com bubble, Pets.com was one of five online pet stores that popped up during this time. Pets.com attracted big-name investors, such as Amazon (who owned 50% of the company), and the company raised $82.5 million in its February 2000 IPO but incredibly, the company filed for bankruptcy just nine months later.

And Pets.com wasn’t alone. There was a whole slew of companies — many of whom simply had ideas that were before their time — who didn’t make it through tougher conditions. Many new ideas and experiments failed along the way. But the truth is that there were at the same time other dotcom companies who had the right product/market fit, adapted on the fly and survived the bust….making life-changing fortunes for their investors.

After the dotcom bubble burst, Internet stocks went on to reign over the stock market for the next two decades.

But if you dig a little deeper, you’ll notice the best tech stocks never came back down again in such a stunning fashion. During the dot-com crash, Amazon dropped 93%, and you could get it for $6…Microsoft dropped 63%, down to $13…And Apple dropped 71%, down to a split-adjusted 20 cents…

Out of the embers of the tech crash, the internet went from the fringes — where it was only used by tech-savvy people — to being used by the average person on the street. In 2000, there were 250 million people who used the internet. By 2010, that number hit 2 billion.

That’s what’s I believe is about to happen with Crypto. For those who are sceptical, let me ask you this…

Why Are the Institutions Piling In?

Why would Crypto exchange Coinbase sign up more than 1,500 new institutional clients in the last six months alone… including BlackRock, the $10 trillion behemoth and the world’s largest money manager?

And why would more venture capital money flow into Crypto in the last six months of 2022 — in the heart of this bear market — than it did in 2021 and 2020 combined?

It’s hard to ignore the fact that the world’s biggest financial institutions are still racing into Crypto. I’m talking about JPMorgan Chase, Fidelity, BlackRock, BNY Mellon…

Simply put, those who control the most wealth on the planet know Crypto isn’t only far from dead… but a key piece of the entire global economy moving forward.

Currently, only 5.3% of the world’s population has Crypto exposure — just 425 million people. But according to a former Goldman Sachs fund manager, that number will be 5 billion people by 2030 — over half the global population.

That’s why investors who actually understand Crypto are excited right now about this investment opportunity…

In fact, according to Reuters, Goldman Sachs plans to spend tens of millions on a hunt for “bargains” after the FTX collapse drove prices lower.

The Wall Street Journal reports that “mainstream hedge funds are pouring billions of dollars into Crypto…”

While Alpha Week reports a “monumental level of institutional investment into crypto assets” at the end of 2022… right in the middle of this winter.

The reason institutions are investing in this asset class isn’t that they’re speculating on a fad… They’re getting into Crypto because they see it as the future.

It may seem hard to believe to many outside the Crypto industry, but we are actually seeing an evolution of the internet taking shape before our very eyes… With Crypto’s underlying blockchain technology at its base.

We call that base Web3.

Web3 Will Change the Internet

Web1 was the early iteration of the internet until about 2000. You could use it to read websites… search for information… and buy items on websites like Amazon and eBay.

Web2 is the version you’re using now. It allows mobile computing… social networks like Facebook and Twitter… and multiplayer games.

It birthed the “Big Data” industry… machine learning… and search algorithms like you see on Google or Netflix.

Web3 will be a paradigm shift for the internet. Rather than accessing the internet through services mediated by companies like Google, Apple, or Facebook, you can actually own and govern sections of the internet in Web3.

Web3 doesn’t require “permission” or central authorities that decide who gets to access what services.

It also doesn’t require “trust” or an intermediary to facilitate virtual transactions between two or more parties.

I know all of this sounds far-fetched to many people. But the idea of sending email over a computer or streaming movies on a smartphone also seemed far-fetched at one time.

The most important thing to know is this: With Web3, you won’t be able to just send data to other people like in Web2, but also anything of value, too.

Anyone using Web3 can make a loan, borrow money, transfer real estate, or even trade fractions of the value of famous paintings with a click of the mouse.

Blockchain technology makes all this effortlessly possible.

At its simplest, the blockchain is an online ledger that tracks transactions. And it has three main advantages over traditional internet networks…

First, it’s decentralised. That means data isn’t stored in one place — it’s distributed. So blockchains are harder to hack than centralized databases, which keep data all in one place.

Second, it uses state-of-the-art encryption. So transactions are much safer.

Finally, it’s peer-to-peer. This allows individuals to transact with one another without an intermediary or middleman — lowering costs.

Because of those advantages, Emergen Research projects the Web3 industry will grow from $3.2 billion today to $81.5 billion by 2030. That’s an over 25-fold increase.

In fact, the World Economic Forum forecasts that the Web3 industry will eventually be worth $8.6 trillion. By comparison, a study by the Internet Association estimated the current value of Web2 at only $2 trillion.

From an investment standpoint, the major difference between Web2 and Web3 is you can actually own a piece of Web3 infrastructure.

The “Ownership” Economy

During the Industrial Revolution, the public couldn’t directly invest in the infrastructure that increased the U.S. gross domestic product (GDP), such as railroads, oil refineries, the electric grid, and the banking system.

The men who owned the infrastructure — Vanderbilt, Rockefeller, J.P. Morgan, Edison — founded some of the most profitable and revolutionary companies in history. They also made a very select few early investors wildly rich.

A century later, history repeated itself with the modern internet.

Its transformative infrastructure and technology– protocols like HTTP and TCP/ICP — let users seamlessly send data anywhere in the world… And it was the birth of Web2.

Those advances are analogues to the changes brought about by new technologies during the Industrial Revolution, and they brought the largest tech companies like Apple, Microsoft, and Google into the world.

Early investors who grabbed shares of these companies made legendary fortunes.

But unlike previous iterations of the internet, you can own a piece of the protocols that make up Web3. That’s why people call it the “ownership economy”… Because you can actually own — and profit from — Web3 infrastructure.

Bear Markets Are Normal

Again if we look at history, bear markets are not only normal but often the best buying opportunity in attractive sectors. I believe the growth prospects of Crypto coupled with the bear market ravaged prices represents one of the most attractive investment opportunities I have personally seen in my lifetime.

People will Soon ‘Get it’ …

It’s understandable why so many people are fearful about Crypto and therefore not willing to actually understand the power of this new technology.

The media is full of headlines calling Bitcoin a Ponzi scheme or proclaiming the death of Crypto as we know it.

But those so-called experts are overlooking a significant Crypto catalyst.

You see, while the broader crypto market is down and many casual investors are selling their positions, institutional investors are RACING into Crypto…

• Fidelity is adding Crypto access to its retirement accounts…
• Goldman Sachs has stated publicly that it plans to spend tens of millions of dollars buying up bargain Crypto firms…
• JPMorgan Chase has officially registered a trademark for its own Crypto wallet…
• And Berkshire Hathaway has taken a $500 million stake in a digital bank offering its own Cryptocurrency.

So in my mind, moving into Crypto now could be very much like buying Amazon for $6 after it fell 93% in the dot-com crash.

Final Thoughts

Hindsight is always a wonderful thing and investors are always nostalgic about the big chance that got away. The tech crash now looks like a no-brainer opportunity, a golden time to pick up some of the biggest, brightest companies at bargain basement prices. Well, that is where Crypto is now. It’s not often that chances like this come along, but, as I said, I’ve seen this movie before …and I’m fairly sure I know how it ends.

PTLIB is CIO of Dragonfly Asset Management.

DISCLAIMER: This content is for EDUCATIONAL AND ENTERTAINMENT PURPOSES ONLY and nothing contained in this blog should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.