This research was sponsored by Luno Global, a platform that allows users to buy, save and manage cryptocurrencies.
Investors are Putting More Money Into Crypto. …
For over a thousand years, paper money has ruled the planet! The idea predates the Mongol Empire and it wasn’t until 1260, 300 years later, when Kublai Khan created the Yuan, Mongol’s first unified note. The concept was quite novel 1 thousand years ago; if you were a merchant traveling the silk road, it made sense to utilize paper bills.
Paper bills were also less cumbersome and needed less security. It made business have less friction. You did not need heavy coins, or for that matter any other commodity such as salt. These items become very hard to scale when it comes to traveling and business, so paper currency became ideal.
We now live in a digital world that has been constantly evolving and changing throughout the last thirty plus years. As a result, we have arrived at a crossroads where digital money is not a fad, but a necessity. There are several reasons why this is the case.
Bitcoin’s economic model and supply cap have proven to be a beacon of light, a lighthouse in a thick fog that can help protect us from the evils of inflation. The digital currency leverages a hashing algorithm named SHA-256.
This consensus algorithm, which helps determine which transactions took place, provides the Bitcoin network with a high level of security, making it virtually impossible to hack.
With computers working in unison around the globe, Bitcoin and Ethereum have become very large decentralized networks, moving close to $50 billion worth of transactions a day! In the digital era, where anything can be cut and pasted, Satoshi Nakamoto, the pseudonymous creator of Bitcoin, managed to address the problem of double spending, which is where a party uses the same funds twice.
Nakamoto solved this problem by using the blockchain, a distributed ledger that is both decentralized, meaning spread across many different computers, and also immutable, meaning that transactions cannot be removed once made.
The creator also provided Bitcoin with digital scarcity by ensuring that the cryptocurrency had a hard cap of roughly 21 million. In other words, under the current rules, no more than 21 million units of bitcoin will ever exist. At the moment, there are fewer than 19 million.
These factors have driven people to bitcoin for over a decade, and they will continue to do so. A perfect example from nearly a decade ago is the bank run in Cyprus. People were forced into a “bail in” scenario that led to account holders losing billions.
Fast forward to 2021, and we see the same problems starting to evolve when a country becomes insolvent. A perfect example of this is Lebanon. This led to the closing of the banks in Lebanon nationwide in June of this year.
These problems may seem like they are on the other side of the globe, and many banks in the West do not look like they are closing any time soon with the likes of Bank of America and others posting record profits during the third quarter.
However with recent news, inflation does not look like it is going to be transitory across the board. The consumer price index (CPI), the benchmark gauge of inflation, rose 6.2% during the 12 months through October.
With prices climbing and interest rates close to zero, it is clear that investors can benefit greatly from the high yields available through decentralized financial services, also known as DeFi. Further, these factors are combining to encourage people to become more financially literate.
We can see this with the rise of the “investor class,” which was exemplified last year with the intense interest in GameStop, which resulted in Robinhood halting trading. Another great example is the visibility that dogecoin, a memecoin, enjoyed, which coincided with it experiencing sharp rises in value.
It is at this point where WallStreetBets and its community start to wonder whether these markets are truly “free” markets, where actual price discovery is taking place, or is it something else?
Digital currencies are different from many other assets. If you hold the keys to your wallet, those assets are yours. These particular assets are particularly scarce compared to units of fiat currency, which could be printed indefinitely.
This week alone, bitcoin and ether were in the top 25 global currencies by market cap, and many of these fiat currencies do not buy many satoshis!
Over the last 10–12 months, the market cap of cryptocurrencies has gone from about $500 billion roughly a year ago to approximately $2.6 trillion as of Nov. 19, 2021.
The adoption curve for cryptocurrencies has also been steadily on the rise, with recent estimates putting world wide users at roughly 300 million! Last month, Coinbase became the most-downloaded free app in Apple’s App Store.
With the explosion of NFTs and meme coins, new people are entering the space every day. They seem in awe of how it is possible to gain some financial freedom from a minimal investment. Most realize this is not the norm, but digital and cryptoassets are clearly here to stay.
With the explosion of games like Axie infinity and Illuvium, the next layer of the metaverse starts to quickly unfold. GameFi, or play to earn as it is also known, along with virtual worlds, are the newest sectors to explode onto the scene. With Axie infinity helping one player in the Philippines buy property for the first time.
With the announcement of Facebook rebranding to Meta, the cryptoverse was buzzing with activity, and the markets rallied to fresh, all time highs. As you can see here from this chart after the announcement on Oct. 28, 2021, the markets did rally in the weeks after.
So it is clear investors from all across the globe are putting more money into these markets. The data is overwhelming. Even billionaire investor Peter Thiel recently said that he wished he had bought more bitcoin, as he stated “I feel like I’ve been underinvested in it” during a press briefing in Miami.
He also stated, as have I many times, that “It’s the most honest market we have in the country.” More and more people globally are starting to see the inherent value of bitcoin, ether, and other cryptocurrencies. As more and more coins provide utility and benefit from adoption, the markets offer more choices for consumers to place their funds where and how they wish.
U.S. savings accounts provide an average interest rate of 0.06% per year, according to The Federal Deposit Insurance Corporation. DeFi can provide yields between 1% and 30%, depending on the platform.
The competition is fierce, and banks will have to adapt to consumers’ ever-growing demand for these digital products and services.
This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.
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