How prosperous will Web3 be?
We created and destroyed $5 trillion in market value from 1992 to 2002. NASDAQ’s market cap then soared back to almost $20 trillion by 2021. One indicator says the future from here is still up, up, up.
If you are looking for new opportunity, I suggest meditating on what will drive the 98.75 percent of the world’s population that does not have a crypto wallet to get one. Eventually, it will happen. Coinbase claims to have more than 35 million accounts, while Blockchain.com claims to have 53 million crypto wallet customers, representing a combined ~75 million wallets. In addition, there are hundreds of smaller crypto wallets with private data, so I am going to generously guess there are over 100 million people (1.25 percent of the world population) with active digital wallets today. While these adoption numbers are impressive and achieved over a 10-year period with cult-like fever, it still pales in comparison to the 122 million smartphones shipped almost overnight in 2007 or the 1.5 billion now shipped each year.
The blockchain/P2P boom feels more organic, like the early commercialization of the Internet. At the height of the Internet Bubble in 1999, there were 248 million Internet users, up from 2.8 million in 1989, when the English scientist Tim Berners-Lee first created the World Wide Web. For the Internet to take off, people needed a publishing platform to share their information across the rapidly expanding global network of computers. In the same way, for Bitcoin and cryptocurrencies to win, people need a digital wallet to manage and trade their coins across multiple public blockchains. With the basic infrastructure in place, are we now living in 2002 again? If this comparison is correct, the growth opportunities in front of us may redefine the word ‘breathtaking.’
What happened after the Internet Bubble busted
As a quick reminder, on October 9, 2002, when the market had finally hit rock bottom after the popping of the Internet stock bubble — stocks had lost $5 trillion in market capitalization since the peak on March 10, 2000. At its trough, the NASDAQ-100 had dropped to 1,114, down 78 percent from its peak of 5,048 two and a half years earlier.
At the top of the bubble in November 1999, my brother Michael and I published our book, The Internet Bubble: Inside the Overvalued World of High-Tech Stocks (HarperBusiness), which foretold the dot-com bust. In the same book, we also predicted that ‘over 80 percent of all great companies associated with the Internet will be founded after the bubble bursts.’ Interestingly, from 2003 to 2015, my previous media brand, AlwaysOn, published an annual Top 250 private company list, which, as may be seen below, ultimately proved our bold prediction turned out to be a significant underestimation.
Riding the momentum of Silicon Valley putting the Internet in everyone’s pocket with the smartphone and turning software into web and mobile apps, NASDAQ soared back to close to $20 trillion in market capitalization. We essentially evangelized and invested billions of dollars into the Internet build-out (at a net loss) in the 1990s and then cashed-in big time over the next 20 years. How well you did depends upon when you starting betting on the race and what horses you bet on.
Tokenization of all tradable assets
As the growth of blockchain-based, Web3 dApps inevitably overwhelms and replaces the cloud-computing paradigm, multi-trillions of wealth creation is on the horizon. The new boom has basically already begun. Public blockchain-based currencies have reached over $2.6 trillion in market cap. Bitcoin alone has outperformed every other global asset class in the last decade, including real estate, gold, and the S&P 500. New generation companies Coinbase ($75 billion) and Robinhood ($25 billion) have been two of the fastest-growing companies in history. Even the initially reluctant VC herds will have plowed $15 billion into hundreds of blockchain startups by year-end, and that number is certain to fly higher.
While the number of people with crypto wallets is an interesting indicator, what drives the desire to have a wallet is what matters. My view is the rise in the dollar value of tokenized assets is the real number to watch. These tokens differ from ‘utility tokens’ such as Ethereum (ETH), where value correlates to usage and function. ‘Security tokens’ represent a share of an asset. Typically they will represent ownership in an enterprise but may also potentially apply to any tradable asset from real estate to precious metals. The attraction to security tokens is the opportunity to fractionalize asset-based investments and provide more portability and liquidity. They also offer a more transparent and less volatile investment opportunity than your typical crypto investment.
Global security token trading volume is expected to grow to $163 trillion by 2030, on the back of $4 trillion in security token issuances in the same period. Mathematically, the security token transformation will make the cryptocurrency and NFT booms look like circus side-shows over the next decade.
Introducing the Cryptonite 250
With our AlwaysOn Top 250 editorial results and success as our testimonial, we would be idiots not to suit up and start creating the ‘Cryptonite 250’ and picking some combination of equity stakes in companies and altcoin bets that offer the greatest upside. There is nothing more valuable in the global Silicon Valley than being one of the first to know about a hot new private company on its way to creating billions in new wealth and thousands of new jobs.
In conjunction with blockchain data partner Amberdata.io (co-founded by Wizards Shawn Douglass and Tongtong Going) and the high-powered, number-crunching students from the University of California, Berkeley Master of Analytics program, our goal is to launch the Cryptonite Index Fund in the first quarter of 2022. And true to the spirit of the New Age, we plan to tokenize the investments made in the Index Fund, so our fellow members and we can get in on the action. If you think you or your company have anything spectacular to add to the formation of the Cryptonite Index Fund, feel free to contact me at tp@cryptoniteventures.com.
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