“May you live in interesting times” applies to today’s era which is turbulent on every plane – financial, technical, social, political. If Blockchain is real and can deliver value it has plenty of problems to solve. That much I am sure about.
Deep in a bear market, capitulation means most people are giving up on Blockchain, Bitcoin & Cryptocurrencies. The Tigger optimists often talk about the great Institutional wall of money moving into Blockchain as evidence that the next bull market is coming.
As an entrepreneur I tend to be a Tigger type of optimist. However there are many things I am not sure about and as an entrepreneur I also know that hope is not a strategy and it is valuable to listen the Eeyore type pessimists; dealing with their objections defines your action list. In this post, I outline:
- What I am sure about aka strong opinions.
- What I think is likely aka weak opinions.
- What I am not sure about aka what I want to learn.
Note: When I say Blockchain I mean Blockchain AND Bitcoin AND other stateless, permissionless Cryptocurrencies. It is very easy for even the most conservative Eeyore types to laud the value of Blockchain without the addition of a stateless, permissionless currency like Bitcoin that is so disruptive. That would be an easy way to embrace and bury disruptive change. Pretty quickly we would move to permissioned Distributed Ledger Technology (DLT) from an enterprise software company that is totally controlled by Institutions. That would be as disruptive as the latest version release of an ERP system.
What I am sure about
- The Blockchain wave of change is unstoppable. Call this an opinion not an irrefutable fact, but it is a strongly held opinion based on two observations in the real world:
- Blockchain does work technically. After 10 years, there is very little doubt about this.
- The current Legacy Finance system is broken. Just ask anybody who went through the Global Financial Crisis 10 years ago if you doubt this.
- I am also sure that the strongly held opinions about this wave of change from both the Tigger and Eeyore types are almost entirely based on how that person’s financial interests are impacted. If you have done well in Legacy Finance, you take the Eeyore side of the debate; Bitcoin will not be good for business. If you bought early into Blockchain, Bitcoin & Cryptocurrencies, you take the Tigger side of the debate; your investments will do very, very well. This leaves the vast majority of the world, who have not done well in either case, unsure about who is right.
- I am also sure that the market will decide whether Eeyore or Tigger is right. For Pooh Bear fans, this humble “bear of little brain” is the market.
What I think is likely.
- Institutions will invest in Blockchain, Bitcoin & Cryptocurrencies. I think the great Institutional wall of money into Blockchain meme is for real. Those Institutions are reading the same market signals and see opportunity and know that “disrupt before you are disrupted” favors the early movers. These Institutions compete with each other. They don’t want to be the Blockbuster/Kodak of this era. All those conservative Legacy Finance Institutions will make some careful, hedged bets that will in aggregate ensure that the next bull market happens.
- There will be another bull market. I have no clue when it will start, or how big it will be; actually I know for a fact that BTCUSD will hit $1.3 million on 15 January 2025 at 11am CET! I simply think another bull market will happen because that is what always happens with disruptive waves of change. There is no certainty on this, but investing is a statistical probability game and the statistical odds favour another bull market.
- The retail speculators who got burned in the last boom and bust won’t do anything in the next bull market. This is not because they don’t want to, simply because they have no money left to invest. Sadly most who invested during the great 2017 meltup got wiped out during the 2018 bear market.
- There are few techie early adopters who will invest in the next bull market. That game was what got Bitcoin into the market in 2010 to 2012 and Ethereum into the market in 2014 to 2015. Those were dirt cheap bets on crazy high risk deals. Why not take a risk if the cost is not much more than the cost of a couple of pizzas? Prices today, even in this bear market are still too high for that game. These techie early adopters will Hodl no matter how low we go, because their cost base is so low, but that does not mean they will lead the next bull run.
- So the market needs a new breed of investor. That is why the great Institutional wall of money moving into Blockchain meme is so appealing to the Tiggers of the world.
- Institutional Investors will come into the market. When they come in and in what volume is unknown, but I believe that the raft of PR announcements by the biggest Legacy Finance Institutions means that they will enter the market. Reputation is as valuable as cash and they have already put their reputation on the line.
What I am not sure about
The mantra of any good investor or any good journalist and of the Experts who write on the Daily Fintech platform is to aim to be a “learn it all, not a know it all”. The more you know, the more it becomes apparent what you don’t know; the search for what is true is never-ending. The best role of an Advisor is often simply asking good questions. Here are my questions about the great Institutional wall of money moving into Blockchain:
- When will it happen? I cannot put a date on it, but I am confident that price is not the major issue. Institutional Investors know the Wall Street mantra that “bulls and bears have their day, but pigs always get slaughtered”. This translates into knowing that it is silly to try and enter or exit at precisely the bottom or the top; near the bottom or near the top is good enough. What I am am not sure about is when the market will deliver the two features that institutions demand:
- Custody. Asset security is a major issue with bearer bonds. This is particularly true if hundreds of traders have access to the keys of the safe. The Private Key security of Blockchain is OK for nerdy individual investors, but less so for big Institutions or for mainstream retail investors. That is why Institutional grade Custody is such a big opportunity.
- Liquidity/price discovery. Liquidity/price discovery is a tough problem to solve in a decentralised network; and Institutions understand that this market will evolve quickly into a decentralised network.
From PR announcements you might think both are close, but the devil/god is in the details. We know this from our Advisory Services,where we are known for combining big picture vision with pragmatic execution. Institutions won’t commit in volume until the details are resolved.
- Will the Institutional phase be short lived like the Intranet phase of the Centralised Internet? Disruptive change often goes through a Corporate phase. Before companies like Amazon, Google and Facebook brought the Internet to the mainstream consumer, we had the Intranet era (closed, permissioned versions of the Internet). That was short-lived. Will the the great Institutional wall of money moving into Blockchain follow the same trajectory?
- What sort Institutions will invest in Blockchain and why? There are three types of Institutions moving into Blockchain and they have fundamentally different strategies and objectives
- Type 1: Buy Side Direct. Those retail investors (derided as “muppets” by the Institutional smart money) are Buy Side Direct. The problem is they invest tiny sums. Family Offices, controlling about $2.6 trillion of global assets, are like retail investors on steroids; they invest their own money. Whether you call them Institutional or not is language issue only; they invest like Institutions and with Institutions.
- Type 2: Buy Side Intermediaries. These include hedge funds, sovereign wealth funds, pension funds etc. They tend to be more conservative than Buy Side Direct because they have “explanation risk”. If they take a contrarian bet and it goes wrong they have a lot of explaining to do
- Type 3: Sell Side. These include brokers, exchanges, Investment Banks ie classic “Wall Street”. They want business from Types 1 and 2. If the Sell Side see evidence that Types 1 and 2 want to get into Blockchain, they will invest to service that demand.
What I think is that the great Institutional wall of money moving into Blockchain will start with Family Offices. If they allocate 1% of that $2.6 trillion they control it will a) bring $26 billion into the market and b) that will bring the much bigger capital pools from Type 2 into the market
If you work in a big Institution and need some help figuring this out from a learning coach (somebody who knows Blockchain from all angles and is good at explaining it), check out our Book An Expert For An Hour service.
Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is the author of The Blockchain Economy and CEO of Daily Fintech.
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