Cryptoassets: The Next $100 Trillion Dollars Asset Class
Crypto assets just crossed the $2 Trillion dollars mark as a whole and if it maintains its current average annualized return (even when factoring for the diminishing returns), it is still set to cross the $100 Trillion Mark over the next 10-20 years.
That would be a 50X growth over the next 10 [to 20] years.
Just for comparison purposes to make sense of these numbers, let's look at the S&P500. In the last 10 years, S&P500 has returned 13.5% annualized.
If Crypto performs just twice better than this (i.e. 26% annualized), you are looking at a $20 Trillion Crypto-asset class over the next 10 years.
That is still a 10X growth from here.
What Would It Take?
For Crypto to get from $2T to $100T over the next 10 [to 20] years, it needs to grow (on average) 22%48% annualized rate.
48% annualized for 10 years = $2T to $100T
22% annualized for 20 years = $2T to $106T
Note: To many people, 50% year after year will seem like an impossible target to achieve, but you have to remember that crypto assets are the tiniest asset class, and therefore, the growth percentage rate would simply be higher because the numbers are smaller and users are still growing exponentially.
An Emerging Asset Class
Crypto assets are an emerging asset class and, therefore, currently the tiniest.
In a broad sense of the word "asset class", this is where we are today:
Major asset classes and their size (rounded up; $USD)
So at $100 trillion dollars, crypto will be at par yet the smallest among the trio of equities, bonds, and real estate.
Note that over the next 10 years, every asset class will also continue to grow at its historical average. So, for example, with a mere 8% annualized growth over the next 10 years, Equities will swell to over $235 trillion dollars. Let that sink in.
The Decade of Crypto
Our focus in this article however is going to the two important questions I would like to address:
Crypto TAM
To understand the TAM for any product or space, first, we need to understand what problems and benefits are being offered by the said product.
For Crypto, it is clearly filling the void left by Gold as a monetary instrument backing all fiat currencies and acting as a reserve. That's one area where Bitcoin has had a successful product-market fit.
What else?
Well, we know that trillions of dollars of bonds worldwide are currently yielding negative returns. That's a real problem that can't be ignored for too long.
Furthermore, Crypto as an emerging technology is also improving both FinTech and Legacy Finance.
Crypto is transforming the Gaming space by introducing creative tokenomics and digital rights that can't be hacked, faked, or copied.
Crypto is bringing Digital Property rights to billions of people worldwide.
Crypto is also enabling a totally new market for social tokens and communities driven and owned "pretty much anything".
So, you have the Crypto TAM as a Store of Value? + a yield instrument + digital property rights + a new technology + uncensorable secure platforms for free speech and social coordinations across geographical boundaries.
So, in your mind, what's the dollar value for all of that? Before you jump to a conclusion, let's look at the user growth against the Internet and Mobile adoption, and then we'll do some simple maths.
Total Crypto Users by 2030
Cryptoassets are not one thing but many things. Just as people use their mobile phones with various apps running on it for various purposes, different crypto assets serve different use cases to different users.
Not everyone needs or wants the same mobile apps, likewise, not everyone will need or use the same crypto assets.
Bitcoin, the leading Cryptoasset is aiming to replace Gold and to become the world's reserve money. It currently has anywhere between 100 million to 200 million unique users and is currently growing over 100% year after year in terms of new users added.
The expected new user growth for Bitcoin alone is estimated to be over 60% annualized, and at that rate, it is set to cross 1 billion users by the year 2025.
The crypto space will continue to add new users as more and more real-world problems are tackled by crypto and public blockchains.
In terms of new user adoption, Crypto is riding the Internet and Mobile waves. The existing internet and mobile infrastructures help crypto apps to reach more people in record time. See below the trend since 2016 (compared against the global internet users between 1992 to 1997). And if you extrapolate, you get to over 1 BILLION Crypto Users by as early as 2024.
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Credit: https://www.globalmacroinvestor.com/
Common Sense & Basic Maths
If so have read so far, you either are an early adopter who understands what's going on or you are a skeptic trying to make sense of Crypto. Some of you may even be silently laughing at these numbers and figures. And you would be not wrong for doing so.
We, humans, are not designed to intuitively grasp exponentials and anything beyond basic arithmetic is not something most people can simply do at their fingertips.
Let's look at some numbers for a few of the things you probably already know about. Let's start with Apple, the company.
Apple is currently valued at $2.54T. The stock market has historically returned 8% over the last 100 years and tech stocks generally have done better than the stock market as a whole.
In the last 10 years, tech stocks have returned 25% annualized, whereas the S&P500 has generated 13.5% annualized returns.
Let's say, Apple, the most valuable company in the whole world continues to maintain its lead and continues to grow at the following average rate:
So, just catching up with the 2030 market cap of Apple, the company alone will make Bitcoin do a 5.5X from here. Let's take a look at the US Stocks as a whole. It's currently at $47 trillion dollars. We'll stick with our 8% historical rate of return.
If the US stocks follows its last 100 years average rate of return, its total size will swell to over $100 Trillion by the year 2030!
At just 3.5% CAGR (which means barely keeping up with the inflation for the next decade), the Global Real Estate will be over $300 Trillion dollars.
For Global Equities, we've never had it this good. Worth over $115 TRILLIONS today, it is at its highest value ever in the recorded history. Not only that, it is valued at over 140% of the World's GDP.
On a good week, stocks (global) can easily gain a couple of TRILLIONS in Market Cap. Think about that for a moment!
Credit: Holger Zschaepitz @Schuldensuehner
So for Crypto to have a $100T total market cap as an asset class is not out of the question. Especially when you compare it with Real Estates, Bonds, & Equities which are all comfortably sitting between the $200T to $300T range by 2030.
So where is all this "Money" coming from? This is the key question everyone should be asking.
Trillions of Dollars of New Value or Existing Capital Rotation?
Those who are paying close attention already know that the correct answer to the above question is 'both'.
The trillions of dollars in the crypto market cap are both the new money being created by adding new values and benefits to the society and as well as various sectors losing to crypto and slowly, slowly giving up some of its markets to Bitcoin, Ethereum, and the likes.
For example, both Gold and Bonds may grow at a lower rate than their historical average while Bitcoin and Crypto, in general, may grow at a higher pace by taking in some of the new capital that would have gone into Gold, Silver, and the Bond market.
Most of the people who have been in the space for a while know that the 2020s are going to be the decade of Crypto. Moreover, among other things, blockchains also help accelerate the adoption and proliferation of clean energy use (primarily for crypto mining purposes). Along with EVs, crypto is helping to accelerate research in battery technologies and clean energy production.
In addition to clean energy, crypto is also vital to the success of AR and VR. They integrate well to create the Metaverse. A Metaverse of all things digital where value ownership and exchange are both safe and seamless across geographical and political boundaries.
Conclusion
For crypto to continue to grow, we will likely need the following conditions and if we continue to have them, we will see an insane amount of interest, user growth and demand, and a growing market cap for the crypto assets.
Let me know what you think about all this. Do you think we will continue to see all of the above trends all over the globe?
To wrap it up, I would like to take us back to the Marke Cap prediction, where we started this journey. My best guess and most conservative predictions are:
I also predict:
Because of instruments such as Bitcoin as a global, maintenance-less Store of Value and instruments like Ethereum which can work as a real yield-generating asset, we will see both the Real Estate and the Global Bond (debt) market lose significant steam.
Crypto will eat a decent market share from Gold & other speculative commodities, Bonds, and (the speculative portion of) Real Estate.
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PS: This should be clear and obvious but just in case, THIS IS NOT A FINANCIAL ADVICE. This essay is purely an intellectual exercise. Please do your own research before making any financial investment.
Revenue Strategy | Markets & Investing | Deal Coaching | Mindsets
3 年Great synthesis of many mega trends and how they interplay with crypto