A crazy thing happened over winter break. A fintech company that, at Thanksgiving, held the valuation of a regional bank, grew to nearly attain the valuation of Goldman Sachs by New Year’s Day. It took Goldman Sachs nearly 150 years to attain the valuation that Ripple achieved in one month through the opportunistic marketing of their XRP token. Is this sustainable? Absolutely not in the medium term. But what it means is that every fintech company looking for an exit will look to offer their version of XRP and billions more in capital will flood into San Francisco and other cryptocurrency heavy cities. It’s as inevitable as gambling is addictive. Bay Area locals are familiar with the explosive growth of real estate prices and the general cost of living following the IPOs of Facebook, Twitter, and Square, as well as the growth of unicorns like Uber and Lyft. It’s very conceivable that a similar amount of capital will chase upcoming token sales and cause a subsequently similar lift in real estate and general consumer prices.
I’ve heard from blockchain founders that the same demo that would have commanded $500K in seed financing two years ago, can now fetch $20M with oversubscribed demand. Keep in mind that a family of four living on $105K is presently considered “low income” in San Francisco, because the cost of living is 1.5–3x the national average. There’s no reason to think that new venture capital flooding the city won’t elevate this threshold to the $130K range if the growth in the next couple years mirrors the growth from the most recent tech boom. This means that even though many of my colleagues have incomes in the top few percent of the general American population, they may find themselves fighting the same gentrification fight that has been fought against them over the past several years, no longer able to afford to live near the city they work. Massive capital flows are like a weather system and tend to overpower even multi-hundred billion dollar corporations. There’s really not much any single company can do to stop this money monsoon.
Are these the classic signs of an irrationally exuberant bubble? Of course they are. But it also means that a new crop of trees will have more than the necessary rain to grow into giant sequoias ten years from now. So what are the implications here? Let’s for a second think about the following truths:
- Donald Trump was elected President.
- Trust in media is at an all-time low.
- Trust in the Federal government is near an all-time low.
- Trust in organized religion is at an all-time low.
- Trust in universities, on average, is lower than any previous Pew survey.
- Trust in all institutions is trending down
So what’s going on here? Is up down? Is the whole world ending? I believe declining institutional trust is directly related to the free flow of information on the internet. For much of their existence, iconic institutions were generally able to control the narrative surrounding their organization. If any malfeasance did occur, these institutions could trade on their manicured reputation to deny and obscure most accusations, because it was so much harder to show proof of corruption (think old school investigative journalism involving collecting quotes and going through newspaper archives). But with the internet, and particularly the mobile internet, two hours of research can uncover what two years used to be able to, so many more people now find the exercise worthwhile. More investigations are done, information is shared at the speed of light, and voila, trust in institutions continues to erode.
I firmly believe that once organizations swell beyond a certain size, it becomes increasingly challenging, bordering on impossible, for their spokespeople to tell a coherent narrative free of obvious contradictions. We have come to learn that there is simply too much chaos in most large organizations for them to actually run the way they want you to think they run. We are seeing that organizations of immense size and stature are increasingly ill equipped to survive in a world where information flows freely, because any hypocrisy in their actions is cemented in digital records.
OK great, so what the hell does this have to do with the blockchain?
Betting on blockchain is betting on small communities flourishing in an ecosystem that will grow increasingly punitive towards large established groups. Despite all the hype about the rising, then crashing, then rising price of bitcoin, blockchain technology will advance the ability of small people and groups to transact with each other without needing to rely on the iconic central intermediaries of today. And a parabolic rise in cryptocurrency prices almost guarantees that at least a small percentage of existing blockchain companies will have sufficient funding to actually build the technology and community engagement that will accelerate public separation from iconic institutions and central authorities. This will inherently mean mega corporations, and maybe even tech behemoths, will hold a continually declining share of GDP. Their revenues may still rise, but they will not at the same rate loyal employees would hope. If this occurs, you will see delayed retirement from existing workers and fewer open leadership positions available to younger employees.
Everything is risky. Even holding money in a savings account exposes you to the solvency risk of your bank and central government. If in 1919, you had the modern equivalent of one billion dollars parked in a German bank, it would be worth about a penny by 1923. Safety just isn’t as safe as one might perceive it to be, and frequently, the perception of safety itself is manufactured and spread to maximize organizational stability and profitability and the expense of truth and transparency.
And after being exposed to the excitement that is present in the blockchain community, I think the core is in it to win it. Hearing crypto millionaires complain about inflated prices shows me that many are in fact mission driven. While many crypto millionaires were busy getting rich, they were also waging a silent war against centralized authority and I for one think a few are going to win. Even if these revolutionaries don’t overthrow banks and world governments, if their share of the global economy grows to 5–10%, that means the total market capitalization of cryptocurrencies worldwide could easily eclipse five trillion dollars, up 5–10x from today’s valuations.
But while I may be correct about the macro, I could still be wrong on the micro. I could easily join a company that has no business receiving the funding it does and won’t go anywhere in the long term. But that’s okay to me. In a short period of time, many in the blockchain community have convinced me that simply learning to see the world through their lens will be infinitely more valuable than spending a seventh year working with my friends at the top rated company to work for in the world.
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