I received a comment from an intrepid reader regarding the ‘Digimocracy’ Macro trend thesis. Great Reason To Go Deeper On The Macro Trend
Comment:
Interesting DTM5 post yesterday. Brings up a couple of questions not on your process but on your interest in one of the 2 main macro trends.
As I see it, the current value of investing in bitcoin is really generated by the companies mining it. Do you see any other real value being created in the bitcoin world, or is it the mix together with DeFi where you see diversifying between mining, bitcoin currency appreciation and what I presume would be some way of monetizing a DeFi platform as sort of a trifecta of creating value?
The 2nd question is how do you feel about the security of bitcoin? With all the hacking going on by unfriendly countries – as much as blockchain tries to decentralize and democratize bitcoin, it seems like that might be a perfect target for dictators to threaten through sophisticated malware attacks if bitcoin were to be adopted by democratic countries and their industries.
ChiChi thank you for the question. I think what you are asking is: Where (and how) is the value being created in this Cryto ecosphere?
Let’s make the very reasonable assumption that cryto currencies are here to stay and have reached a stage of some legitimacy and application. I think this is exhibited by the total market capitalization (value) of and liquidity of all cryptos currently trading. As of this moment the top 10 cryptos have a total market cap of over 560 billion USD dollars as of right now those 10 have trading volume of 110 billion USD over the last 24 hours.
Different cryptos and currencies have different attributes – and those attributes can create value if adopted by enough people and utilized (the network effect). I could blather on but instead check out this chart:
So, the attributes of Cryptos create potential value, and that value is created and increased through its adoptive usage – The Network effect. And there are other ‘values’ to Cryptos aside from ‘money’ usages. Store of value (as an asset) is the key one. A transformational financial tool is another – 1.7 billion of the world’s population are ‘unbanked’ and another couple billion exist in jurisdictions where banking is corrupt, fragile and a tool of political control. And this (Bitcoin or Crypto) is a medium, being used now, to allow individuals to save, manage and transact locally or internationally. Quickly, easily, discreetly. It is incredibly disruptive.
As well, around the adoption and utilization of Cryptos & Blockchain is springing up an entire ecosystem / industry of companies and services. And not just apps and tools, but an entire finance / trading / banking / investment / Blockchain sector is emerging. Call it the DeFi Industry for lack of a better term. Mega value being created there.
Regarding security of bitcoin (or other digital currencies)…..and at risk of sounding like a bitcoin fanboy…..I would contend that the nature and attributes of a decentralized blockchain and cryptographic technology make something like bitcoin perhaps the most secure currency / payment system in existence. The invention of blockchain created a system that solved the ‘trust’ problem inherent in every transactional relationship. It’s mind blowing. Simply put – Hackers can get control of a centralized network. They do it all the time. Banks, government entities, businesses, etc. But how does one get control of a de-centralized network when there is no control to begin with?! Whose every transaction is based on network consensus and validated against every transaction that has occurred since the beginning of the chain? And when any minor network protocol change requires 95% consensus? It is the definition of a paradigm shift.
I found interesting an article in Forbes magazine yesterday. “Massive hack exposes bitcoins weakness” But there was no hack of bitcoin. There was a hack of a wallet provider (think a bank type thing) where the hackers got wallet numbers (think bank account numbers) of the users of that business. Note to Forbes…..those wallet numbers are already public information on the blockchain! So basically, some consumers personal data was stolen…..The Blockchain was not hacked. No bitcoin was stolen. Nothing. If anything the article should be titled ‘Modest hack of company with lax security demonstrates the value of holding your assets in bitcoin!
Now I hate to come across as a Crypto kool aid drinker, and at the end of the day this is a thesis….not a religion. But its kinda cool! And to make big bets, strong conviction is required. Remember, the DTM5 is focused, volatile, fraught with potential risk and a whole lotta fun!
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