Digital Assets: Are We Still Early?

Over the past few weeks, if you're in the digital asset space you've probably been questioned over the holidays.

"Am I too late? What should I buy? Are we going up or down?"

I'm writing this in an effort to give my opinion, which in no way constitutes financial advice. In an effort to save a few long conversations here's my take on where we're at, and where we could be heading.

Crypto users are growing at a rate of 113% per year. We're currently sitting at over 300 Million global users and a $2.37 trillion market cap of all digital assets. If the growth rate stays concurrent with the last 4 years, we will hit well over 1 billion users by 2024.

In a recent interview, Global Macro Investor Raoul Pal said, "If we look at how fast tokenization is eating into other asset classes, coupled, with adoption rates we can estimate future global market cap. The reality is all other asset classes: global equities, global bonds, global real estate, are all between 250-350 Trillion, with the derivative markets being 1 quadrillion, and FX markets over a Quadrillion."

Raoul went onto say " If crypto mirrors other asset classes and continues adoption rates it should hit $250trillion in the next 10 years, which sounds about right, we potentially have a 100x from here ".

With the above being stated I absolutely think we're early. Digital asset projects will continually eat away at legacy middleman businesses and replace them with protocols that will do the work 99% cheaper. I think people are starting to slowly realize there's much more going on in our space than people trying to be money. Tokenization will dramatically eat into traditional equities.

Tokenization = inclusiveness

The beautiful thing about digital assets is everyone can participate. In traditional early investment opportunities, you have to be an accredited investor to participate. The Government protects you from investing in early-stage businesses while encouraging you to take on debt in other aspects of life. All this oversight while you can fly to Vegas and gamble your life savings away at free will.

Some of the best-performing real estate opportunities are well out of the reach of everyday individuals. With tokenization of real estate, it levels the playing field. Now someone making minimum wage can get the same percentage exposure as ultra-high-net-worth investors on A class opportunities.

With this concept alone I see tokenization of real-world assets ramping up.

Metcalfe's Law

Metcalfe's Law” says that a network's value is proportional to the square of the number of nodes in the network. The end nodes can be computers, servers, and simply users.

6 Nonmarket correlated drivers to new users and nodes (taking hype cycle and pure speculation out of the mix)

• Defi Protocols are bringing in users at astonishing rates. Even Kevin O'Leary who in 2019 was a famous crypto protractor now has major Defi exposure. Even investing in a Canadian Company WonderFi, which specializes in bringing Defi to the masses, including a DeFi index, even institutions are getting exposure to DeFi yields
• Staking is the act of locking up crypto holdings in order to obtain rewards or interest. The network outs the assets to work on a consensus mechanism called proof of stake, which out simply verify transactions on chain. Users can earn 2%-30% in rewards depending on the asset.
• Crypto Banking/Debit cards - Exchanges like Voyager are launching debit cards where the underlying asset is USDC. Now users can deposit Fiat into voyager and convert to USDC in one click. This creates a Debit card that earns like crypto and spends like cash. Imagine having a bank account earning 9% interest. The Voyager debit card also boasts crypto back features with the debit card.
• Web 3.0 is a decentralized version of the Internet where users have control over their data. The third version of the internet will have more transparency and boast massive content that will be accessible to all. In current web 2 Amazon, Apple, Facebook, and Microsoft and google control a large portion of the world's data. Many issues have been raised about privacy on web 2 as users in my opinion have little if any. Additionally, Web 3.0 is believed to be more user-specific, which will ensure data security and privacy while lessening the risk of Internet hacking. Many tokenized assets and protocols are planning on migrating or developing on Web3.
• Metaverse is a virtual reality space in which users can interact with a computer-generated environment and other users. Daily Mobile phone use is a mind-bending 3:54 hours per day, and this time has gone up year on year since 2014. Younger users would rather have a virtual world in which they can interact, buy, sell, trade, game, and experience real-world events in the metaverse. Even Facebook changed their Name to "META". And who's better at front running technological advances than good old Facebook?
• Play to earn Gaming is just the beginning for projects like Axie infinity. Axie has attracted more than 2 million daily users worldwide. In developing nations, many gamers can earn more in a month than they could in a year working jobs in that country. Axie says over 25% of its users were completely unbanked making the Axie wallet is their first exposure to financial services. Another interesting stat over 50% of Axie's users never had any exposure to crypto prior to gaming on Axie. Another sign these non-correlated use-centric platforms will drive network effect, and Metcalfe's law.

Amara's Law

Amara's Law states: We tend to overestimate the effect of a technology in the short term, and underestimate it in the long run

You can look at comparable new technologies such as: AI, GPS, Autonomous driving, when the consensus seems to determine progress has slowed, we're typically at the "trough of disillusionment" where development catches up as expectations fade.

I truly believe we're at that place in the growth curve for digital assets. Long-term use case-centric use cases are gravely underestimated. With this sentence alone I think it's fairly easy to see I'm under the impression we're fairly early.

But... if you're looking at anything from an investment standpoint the key question for yourself is "what is my time horizon"? No one can answer that but yourself. If you have a short time horizon digital assets may not be for you.

Hope everyone has a great 2022 #WAGMI

Sources : Institutional Crypto Adoption: Three Factors to Watch | CoinShares Research , Global Cryptocurrency Ownership Data 2021 - TripleA (triple-a.io) , Metcalfe's law - Wikipedia , What is staking? | Coinbase , Believe Web 3.0 is the Next Internet Revolution? Watch These 3 Stocks (yahoo.com) , Design Defined: Amara's Law in Product Design | Bresslergroup Cryptocurrency Prices, Charts, and Crypto Market Cap | CoinGecko How Axie Infinity is turning gaming on its head - The Verge
Axie Infinity Nears 2M Daily Active Users as Creator Raises $152M Series B (coindesk.com)