In 2020, Warren Buffet said in an interview with CNBC: “They [cryptocurrencies] don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on”. It was the same old story I got from friends who invested in start-ups during the Dot-com bubble : “Don’t need to understand. Try not be the last one to sell.”
However, investing in the winners would be like hitting a home run. Here are the three reasons, cryptocurrencies may be the next big thing and I don’t want to miss out like this shopkeeper did on gold.
Adoption directly results in massive price increase
In 2010, Laszlo Hanyecz bought two pizzas for 10,000 bitcoins. Ten years later, Bitcoin has surpassed the $50,000 mark making those pizzas worth more than $500 millions!
How is it possible? Bitcoin users have grown from a community of 100 geeks to an estimated 100 million people. The more people use, hold, trade a currency the higher its price is. Network effect is therefore embedded in cryptocurrencies. What would Bitcoin worth when it reaches Facebook 2.8 billion monthly active users?
Cryptocurrencies will host stand-out value propositions
How come Bitcoin top $1,100 billion in market capitalization while being useless? In 2009, it was designed to be electronic cash but is mainly used as digital gold. Like the yellow metal, Bitcoin doesn’t produce cash flow, is highly volatile and cannot be used for paying your rent. But in the long-term, they would both keep their value because of their perpetual shelf-life and rarity. Indeed, thanks to the blockchain technology, Bitcoin is the first digital asset with a limited supply. It even provides cheaper security and higher liquidity. You only need to safeguard your seed phrase to secure your bitcoins and, with trade volumes of more than $50 billions per day, you can immediately and efficiently sell them.
With smart contract technology, cryptocurrencies will offer even more stand-out services. Basically, smart contracts remove all constraints of location, trust and regulation because transactions are done according to a code that is automatic, open-source and auditable. The first prominent applications were ICOs and DeFi (Decentralized Finance) but there is no doubt that the best will come in the next few years.
Engaged communities will ensure mass-adoption
In 1993, Microsoft launched Encarta, a digital rival to encyclopedia Britannica. Three years later, it overtook the #1 spot but had to close shop in 2009. Despite the seemingly infinite resources of giant Microsoft, Encarta offered only 62,000 articles vs 2.8 million generated by users of Wikipedia. Decentralization is the most powerful tool to create content and applications to kick start mass-adoption.
A crypto is natively decentralized and therefore, will become what its users want it to be. Cardano blockchain is a prime example:
- It has been built by researchers following a peer review process,
- A completely decentralized network of stake pools and ADA (the coin in Cardano) holders cooperate to operate the blockchain,
- ADA users vote to finance new applications and projects.
As a result, Cardano has one of the most engaged communities in the crypto-world and has overperformed the market in 2021.
Wrap it up
History has taught us that all successful start-ups relied on network effect, stand-out value propositions and decentralization. Technologies in crypto bring those three concepts to the next level. That is why crypto may be the next big thing and revolutionize the economy. Our duty as investors is then to choose and support the winners.
You may want to read : Is Bitcoin the Digital Gold?