Over the course of your lifetime, you will witness a few monumental innovative leaps that fundamentally change the way that you live your life. These upgrades to the status quo generally open the doorway to vast opportunities, both personally and financially. The most significant that has occurred in my lifetime was the creation of the internet in December of 1990 by Sir Tim Berners-Lee. Sure, the internet existed before this, dating as far back as the 1950’s with the Department of Defense, however Berners-Lee proposed the system of HTTP and URL structure as well as the term World Wide Web. This gave the world access to an abundance of information. Fast forward 33 years, and most of us are sitting next to at least 5 devices that are connected to the internet. Right now, my watch, Phone, laptop, TV, Amazon Alexa’s (I have 4 of them), dog collar, doorbell, security camera’s, printers, and DJ equipment, are all connected via the internet. Each one of these represented an investment opportunity at some point. The big question is, did you see it coming and did you invest in it back in the 1990’s? While you may have bought a couple stocks, you probably didn’t see the future magnitude of these companies and most likely sold your shares long ago. While many companies have disappeared, others like Amazon and Ebay have amassed incredible fortunes to those who held on. Amazon alone is up over 177,000% since its IPO in 1998.
The present-day innovation that may one day rival the gains and importance of the Dot Com era, is the upgrading of the global financial system with digital assets and cryptocurrencies. At present, there are over 24,000 different crypto projects attempting to capitalize on the prospects of a much more digitally connected and decentralized financial world.
You older readers may scoff at the above idea, but it will happen. Think of how music has evolved. If you wanted music back in the early 1800’s, you had to go to a theatre and see it live. Then along came the phonograph in 1887, which allowed you to listen to music wherever you had a phonography player. Then it was 8-tracks, cassettes, CD’s and ultimately MP3’s. Each music delivery system was an improvement on an older technology. Today, you don’t own anything physical, you simply stream digital music from your favorite source. Money will be no different.
The big question is, what are you doing to prepare for this financial revolution? The world of digital assets can be broken down into several different categories, each presenting society with improvements on the current outdated system.
First there is the Store of Value category. These are typically digital assets that have a fixed supply and are primarily used as a medium of exchange, currency. The crypto market widely views Bitcoin as digital “Gold”, and its sister, Litecoin as digital “Silver”. As utilization and demand increases, prices will most likely surge due to the fixed supply. There are also stablecoins which are pegged to a wide variety of fiat currencies such as the British Pound, Japanese Yen, Euro, Canadian Dollar and many more. This gives users the ability to quickly change their currency holdings to capitalize on the price trends of global currencies, a significant improvement over the current Forex trading system.
Second, is the category of Smart Chain protocols or programmable Layer 1 technologies. These are blockchains which function as a medium of exchange, but also enable users to program onto that blockchain. For example, Ethereum, the largest Smart Chain protocol, currently has over 4,000 different projects built on top of their blockchain. These applications could be anything from an identity token to a decentralized trading exchange, insurance company to a stablecoin. The possibilities are infinite. There are dozens of Smart Chains striving to be the leader in this space. Some of the major players are Ethereum, Avalanche, Solana, Cardano, Cosmos, and Algorand. When evaluating which one to add to your portfolio there are several things to look for: Network stability, block time, transaction speed, scalability, and decentralization. Each of these protocols are very different in how they function and the attention they draw from regulators like the SEC!
The third, and most exciting market segment is Targeted Projects. The diversity of projects that people are building on top of these Smart Chains is staggering. Some are looking to create financial exchanges that rival juggernauts like the Euronext or NYSE, others looking to create censor proof social media sites or streaming media portals to compete with Amazon AWS or Google Cloud. There are also projects looking to connect all your electronic devices with the IoT (Internet of Things). Imagine your refrigerator knowing when you are low on eggs or milk and ordering them for you and having them all delivered the same day. All possible with digital assets.
While there are many pie in the sky ideas which will most likely fail, there remains a variety of projects that have the potential to gain adoption on a global level.
Nobody can see the future or tell us which of these 24,000 different projects will be the next Amazon or Google in 10-15 years or fade away into nothing. It’s up to each one of us to do our research and make sure we are not buying into a scam. One thing I’m 100% certain of is that societies around the world are going to become more and more digital in coming years.
With the rollout of the FedNow program, it should be clear to you that money is going digital. In a couple more years we will most likely have a Central Bank Digital Currency (CBDC), which may replace physical money in society just like streaming media did away with physical music.
When this happens, the world will be forced to embrace digital assets. This will handsomely reward those who had the foresight to see it coming, built a diversified portfolio and had the patience to hold on.
On the date of publication, Merlin Rothfeld had a position in: ^ADAUSD , ^BTCUSD , ^ATOMUSD , ^ETHUSD , ^SOLUSD , ^AVAXUSD , ^LTCUSD . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
