Is cryptocurrency hype?

Hypes and hyperbole are not new in public markets. One needs to remember that all technology companies lost value in the last six months. But, tech stock has been outperforming the market for the last three years. Google, Paypal, Meta, Amazon et.al have produced fantastic results for investors.

All new markets are ripe for speculation.

In 1713 The South Sea Company stock already offered a guaranteed return of 6%. Speculation in 1718 about what effect the end of The War of Spanish Succession would have pushed South Sea's stock from 128 1/2 a share to nearly 1000. Eventually, the performance did not match the hyperbole and speculators, and many leading financiers, bankers, investors and even Members of Parliament were found guilty of financial irregularities.

So, a very similar case to cryptocurrency.?

Not many understood the exact business model that the Southsea company was offering but believed the hype generated by the interest of other investors.?

?Is this like cryptocurrencies??

?How many people can explain cryptocurrency, blockchain, or tokenisation to you?

?More than $2 trillion has been sunk into this market by banks like Mellon, Citibank, Nomura, HSBC, Ing, Goldman Sachs, JP Morgan Stanley etc.?Do they understand what they are investing in?

?A more recent case of hyper speculation was the.com boom.

?The.com bubble was speculation around online retail models in 1995. Few investors understood the business models or could predict what would happen. The hype took the Nasdaq Composite Index to a high of 400% in 2000 March 2000 to a full 78% two years later. A few companies financed by that boom are still with us, particularly, Amazon.

However, many companies that received large amounts of funding have disappeared. One may remember pets.com, boo.com and, world.com.

Pets.com burned about $240m in a couple of years. Theglobe.com hit an intra-day high of $97.00; for a one-day gain of 977% before closing at $63.50. theGlobe.com raised $27.9 million in its IPO and had a market cap of $842.0 million.

?Some survivors like Amazon and eBay have adapted substantially since those heady days.??

?So, the hype around new markets and technologies is not new.

?What of cryptocurrencies and blockchain, and the tokenisation of assets??

?Cryptocurrencies are digital tokens used as a means of exchange.?Think of them as digital money, but they are not necessary or strictly relevant to the tokenisation of assets.

They all rely upon blockchain. Blockchain is a software system that operates as a Distributed Ledger and uses Smart Contracts to enable transactions without a trusted middleman, such as a bank. Security guarantees the immutability of transactions once the Smart contracts are locked in. They create trust and can change the global financial system.

The tokenisation of assets is not new. REITs (Real Estate Investment Trusts) have existed for many years as a way of fractionalising real estate.?

The blockchain model can operate transactions much faster and is therefore much cheaper and less cumbersome to set up and operate.

The tokenised asset marketplace is growing very fast and is predicted to be a $24 trillion market within four years. The main benefits of tokenising assets are faster, market liquidity increased transaction speeds and reduced costs. Despite what people may think of tokenisation it mitigates risk and fraud and creates new asset classes and secondary markets.

The regulation around trading tokenised assets is somewhat fragmented and complex.

It is simple to create corporate structures to represent the assets in a simple share structure that converts to tokens and digital coins.

The largest and most illiquid assets will benefit most from this new treatment. Real estate and mining, and big financial assets.

Despite the current speculation about cryptocurrencies blockchain, and tokenization are here to stay. Several countries are building digital central banking systems, and some have already produced early models. Japan and China are committed to a digital central bank and, many tokenisation companies are on the Nikkei Index.

Second-generation blockchain technology offers much faster and more secure transaction speeds to break through the significant barrier.

Millions of transactions per second are possible with new technology but current systems are operating at several hundreds of transactions per second. New technology is four or five times fast, use less energy and has quantum security. The impact is that transaction costs become almost negligible.

There have been significant examples of tokenisation in real estate and gold mining as ways of raising funds, selling assets and marketing to new user classes of smaller investors.

The ultimate effect of this technology and the tokenization of larger assets including, digital central banking is profound.

The new token economy is forecast to be worth more than all the gold ever mined!

Digital central banking will enable billions of people to access financial transactions and investments who have never been able to do so before.

The democratisation of assets and global peer-to-peer systems running at almost no cost will revolutionise real estate and mining. finance, energy, and even social and political systems will also be changed.

Buying and selling property has already been done in a matter of minutes at a fraction of the cost compared to legacy models using smart contracts and blockchain technology.

Many countries have a digital property register. The UK, Sweden and Japan are already online and ready to accept these sorts of deals.

So, the tokenisation of assets will be the big break breakthrough making the combined value and volumes of cryptocurrency look like a rounding error!

All new markets are ripe for speculation.

As you can see, we are now in what's metaphorically called The Trough of Disillusionment which represents the lowest point in the marketplace for cryptocurrencies. You can see that the first cycle called The Technology Trigger was very fast and sharp and reached a very high point which we could paraphrase as being overvalued. The third phase is called The Slope of Enlightenment and the final comes The Plateau of Productivity.

If you now reflect on the.com boom and see how this graph might have represented it, you will see that the Internet models have matured and achieved a wide global penetration. But, not before a crash. The crash is part of the whole cycle, and this is all we are seeing with crypto now.

The speed of change that we're going through currently is almost incomprehensibly fast and McKinsey has shown how each new technology and business model is acting in a compound way upon all the others. So, the Internet, microprocessors, and now blockchain enable high-speed changes. McKinsey says,

‘Compared with the Industrial Revolution, we estimate that this change is happening ten times faster and at 300 times the scale, or roughly 3,000 times the impact. Although we all know that these disruptions are happening, most of us fail to comprehend their full magnitude and the second-and third-order effects that will result. Much as waves can amplify one another, these trends are gaining strength, magnitude, and influence as they interact with, coincide with, and feed upon one another.’

If you do the sums on that all the advances of the Industrial Revolution (100 years assumed span), would happen in 12.2 days.

Bear the speed of progress in mind when assessing new trends. They happen fast!

Blockchain, cryptocurrency and the tokenisation of assets are here to stay. Hype is about to disappear and be replaced by solid business models that offer real benefits and make sustainable margins.

More importantly, however, these are new business models and offer new opportunities both to commerce and ordinary people. A new era of democratised assets, digital central banks, low-cost investments and changed social and political models is emerging! Be ready!