by Anne Szustek Talbot, director of content, BX3 Capital
Ignorance is bliss.
Put another way, you can’t miss something you’ve never known. Take culinary diffusion, for example. In most cities across the U.S., in the late 90s, sushi was a rarity at best and at worst, incurred a reaction along the lines of “eww…raw fish.” Most metro areas didn’t have the market to sustain multiple sushi restaurants, much less have a sizable clientele that could discern tekka maki from tempura. Come 2018, sushi is so commonplace that you can pick it up from a grocery deli section, a chain pharmacy, or for the more adventurous among us, gas stations.
If it takes as long as two decades — previous centuries of Japanese culinary craftsmanship notwithstanding — for something as benign as a California roll to become part of the popular consciousness, imagine the rate of adoption run time for something that isn’t lunch. Cryptocurrency is not even 10 years old. Yet it has managed to pique the interest of big-name asset management firms, dominate news headlines, and help diffuse tense holiday dinners with family — as well as the butt of a lighthearted sitcom joke involving a real-life news anchor. Cryptocurrency is well ensconced in the zeitgeist. Whether out of curiosity or in derision, that it has become part of our collective conversation is well and good.
At the end of the day, however, its product uptake needs to take precedence over its popular one. The main issues at stake with crypto, are a sense of inaccessibility, which in turn, prevents stakeholders from developing a sense of familiarity and comfort with the product.
“As someone actively working in the blockchain industry, I have had a number of people ask me how to invest in cryptocurrency,” says Kyle Asman, co-founder and partner at BX3 Capital. “In general, people just don’t understand how to get in and buy tokens.” Indeed, outside of a few crypto-specific automated teller machines that are newsworthy in large part because of their rarity, the general public can’t procure a Bitcoin or tangible Ethereum currency. To many, crypto remains something purely theoretical, not unlike a mathematics theorem — and as out of grasp.
Mistrust from Traditional Stakeholders
The plague of cryptocurrencies’ perceived exoticism extends to large-scale asset management firms. According to Ryan Orbach, co-founder and partner at BX3, it’s well-nigh impossible to convince a major bank or investment bank to go into a product or an asset class that seems insecure. “The number of hacks of exchanges and stolen wallets is frightening to big money managers who are entrusted to safeguard client assets,” says Orbach.
Suffice it to say, an investment vehicle that is already seemingly opaque, coupled with an extra shroud of risk, is not going to be an easy sell. So why would anyone want to rush into it, never mind write think pieces about why they should?
Will Emerging Markets Lead the Way in Crypto Adoption? Venezuela Grasps for Solutions
Ironically, the answer lies in the very reason why people have been slow on the crypto uptake: its novelty.
Take the case of Venezuela. During the mid-20th century the petrostate was once the world’s fourth-wealthiest country per capita. Come 2018, after nearly two decades of extreme economic malfeasance compounded by the mid-2010s swoon in oil prices, Venezuela is staring down inflation of as much as 1 million percent. In economies with stable, hard currencies, the volatility and lag time associated crypto might not seem worth the bother. But in a country where the economy is seeing six-digit inflation, lengthy transaction confirmations might not seem all that bad. Hence Venezuela’s adoption of the Petro as an alternative to its fiat currency, the bolivar.
“If money has always worked for you and everyone around you, it’s hard to imagine a fundamental failure of monetary systems,” Orbach continues. Yet distaste for the status quo can be a catalyst for change, rather than complete collapse.
Turkey: New Interest in Crypto Amid Low Central Bank Interest
Turkey is experiencing a similar state of affairs amid its recent woes with the lira. Recent geopolitical bluster, compounded by negative reports by investment ratings agencies, have sent the currency reeling to nearly seven to the U.S. dollar. (Early last year, the lira was about four to the dollar, which was considered weak enough compared to its 1.4–1.8 versus the greenback during the late 2000s.)
During August, as the lira hit the pavement, interest in crypto has only gained momentum. (More about this in a later post.) Volume on local crypto exchange BtcTurk swelled by more than 350 percent the first two weeks of the month. And while Bitcoin has had its own run-ins with volatility this year, it has gained 13.4 percent in value against the lira over the past month. Inflation in the country likewise has remained at uncomfortable levels, hitting an annualized rate of 15.85 percent in July, the second-highest reading in the G-20 after Argentina’s 31.2 percent. (To put this in context, the next highest reading among the world’s 20 wealthiest countries was South Africa, with 5.1 percent.)
The Turkish central bank has had its hands tied: Fiddling with the interest rate, a usual mechanism to rein in inflation, has been largely verboten under prime minister-turned-President Recep Tayyip Erdoğan, who decries raising interest rates, lest the country fall under what the country’s leader considers the thumb of the “interest-rate lobby.” (It’s worth noting that charging interest is not permissible under the tenets of Islamic banking; despite Turkey’s constitution professing a secular republic, Erdoğan’s policies are rooted in political Islamism.)
Tides change. In February of this year, Mehmet Şimşek, present deputy prime minister, former finance minister and part of Erdogan’s general inner circle, proposed a framework for a national cryptocurrency. All the while, the Turkish central bank, while advising caution, had launched a cryptocurrency working group, noting that crypto could bolster economies “if designed well.”
Granted, Turkey’s economic situation is nowhere near as dire as Venezuela’s. While imported goods are that much further out of household budgets in the former; in the latter, a roll of toilet paper can cost more than a money stack of equal height. Should crypto help change either country’s economic winds, however, developed economies may consider either case their macroeconomic proving ground.
Crypto: For Economics and Everyday
On a smaller scale, cryptocurrency services are stepping in to fill the uncertainty gap for retail and institutional investors alike.
“With Coinbase releasing a custody solution, and many other services not far behind, it looks like we could soon have a flow of institutional dollars into the marketplace,” says Asman. Coinbase also provides accessibility to the everyday investor on how to buy Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.
Nevertheless, the platform can seem daunting to the crypto newbie. Asman has his cryptocurrency-issuing clients create videos guiding potential buyers through the token acquisition process, helping to put the investment process into layman’s terms.
This being said, “Until the on-ramp into crypto is easier, mass adoption will be very tough,” Asman notes. The proverbial drawbridge has been lowered nonetheless. The diffusion of innovation theory suggests that early adopters need to share a new product or service with two other people to become adopters, for uptake to grow exponentially accordingly.
Lowering the Crypto On-Ramp
Think of the early days of Google’s Gmail, when the service was invite-only, or Facebook, when membership was limited to college and grad students. Now both companies are not just respective standard-bearers for web-based e-mail and social media, they are a bellwether for tech stocks in general. The market for crypto is there; the everyday use can come in time.
Crypto will have its day. If you’re hungry for a quick fix, though, I’m sure the chain pharmacy across the street has a package of day-old sushi.