Cryptocurrency has been a huge hype in financial news this past year, and I’m starting to understand why. With stories of overnight crypto-millionaires, I don’t think there has been anything in the history of money that has drawn in so many curious investors, since the era of panning for gold.
By now, most people have heard of the big three: Bitcoin, Ethereum and Litecoin. Even investment guru Warren Buffett and his partner Charlie Munger, are speaking about Bitcoin (regardless of their opinion). But cryptocurrency is more than just those big three. The blockchain technology is revolutionary and the altcoins and their functionality (e.g. smart contracts) are groundbreaking.
This blog is going to discuss the pros, cons, opportunities and setbacks I see coming for the future of cryptocurrency.
Cryptocurrency is still in the developmental stage. It's like the 90’s when dot com companies were booming. When we look back now, 98% of those companies failed. But the few survivors not only survived, they changed the world of money.
Just like the dot com era, there will be several cryptocurrencies that survive and go on to change the world. The question is, which ones?
Everyone has their opinion. The big wigs in money have basically turded (my own word) all over cyber currency. That is their opinion.
I certainly give Munger and Buffett plenty of credit for being smart and capable business men. But, I suspect in their perspective, there is a real generational void in their understanding of where cyber currency is going.
There is a belief system around cryptocurrencies that if you don't own them, you're not going to understand or accept them. But if you own them, you see the vision. You see how cryptocurrencies have the potential to revolutionize commerce, trade, and investments.
I want to make sure you understand that Buffett and Munger are financial geniuses. And while I don’t agree with their opinion, I don’t think you should ignore it either. While very smart, Munger and Buffett simply don't see the future of cryptocurrency.
If you see a future for cryptocurrency then you will act differently. I’m acting according to my vision of the future.
When I try to comprehend both sides of the coin (my philosophy for viewing all opinions), there are two thoughts that become glaringly obvious about the different points of view:
- There's a big technological gap.
- More importantly, there is a huge mindset gap.
When talking about investing in cryptocurrency, you must first believe in it strongly enough to dig down not only the technology aspect of it but its overall vision. That is how you can understand it. And that's where it becomes a belief system. If you believe in it, then you begin to believe all its possible permutations.
Lately, some prominent financiers and industrialists in the “Buffett-Munger camp” (who initially pooh-poohed it and said it was “crypto-crazy”) have had a change of mind.
Jamie Dimon, of JP Morgan, is a classic example. Once completely against the movement, has since changed his tune as he began to analyze how to trade cryptocurrency. Because of this, he are now starting to see the vision (AKA future) in a meaningful way.
So, what is this vision that is changing these old-school investment firms into the pro-crypto camp?
The overarching vision of cryptocurrency is cutting out the middle-man. More specifically, banking transactions and any form of governmental institution who that regulates monetary exchange. It’s a big vision, and one that excites many people. It’s on a trailblazing path that will completely disrupt most, if not all, of the financial networks in the world today.
Some examples of this disruption are quick cross-border transactions, simple exchanges with some pseudo anonymity, and a secure ledger that keeps track of and validates everything.
There are multiple roles for cryptocurrency that will influence how financial institutions and any financial transactions (including the collecting of your taxes, payment of taxes, accounting for one's wealth, etc.) are going to be affected.
A very big sub-industry in the financial world is the transferring of money, like Western Union. But with cryptocurrencies taking the stage, there's no need for these companies anymore. So those guys are toast.
So now might be the perfect time to look at all the publicly traded companies whose focus is transferring money, and buy Put Options on their stocks. Basically, a Put Option is you “betting” that the stock price will go down. I don’t believe in gambling but with a little more research you can decide for yourself if it’s a strategy you want to execute.
It’s not just the financial institutions that will be changing.
A lot of industries are going to be impacted in a big way. Logistics and shipping will benefit hugely from the adoption of blockchain. Logistics and shipping are racing to adapt it because it is immensely accurate and immutable. It builds added trust for the consumer and the supplier.
So, you might watch the big shipping giants like FedEx, UPS, and DHL. Maybe bet on the companies who adapt blockchain technology first and bet against the ones who are slow to adapt. Again, you need to do your own research, but this is a field I will be keeping an eye on.
In summary, there are plenty of ways to make money from blockchain and cryptocurrencies without actually buying into one of the big three, like Bitcoin. But the first thing you must do is determine your vision of the future. Is it more like mine or is it closer to Buffett and Munger?
Let me give you one more piece of the puzzle that might lead you to see my perspective.
The country of Singapore, one of the most progressive, smart, sharp, well run nations in the world, has started a Bitcoin bank note. Singapore is a financial center. So, why would Singapore come out with a Bitcoin bank note?
They clearly have the vision. Singapore thinks about business. They are well known for being innovative in industry and commerce. In fact, many Singapore companies are rapidly adopting the blockchain for things like logistics for supply management or improve access to finance in Southeast Asia.
And it’s not just Singapore. Right here in the United States, the CBOE, the Chicago Mercantile, and the Chicago Options Exchange, are already trading cryptocurrency derivatives. Our SEC (Securities and Exchange Commission) department is beginning to approach the creation of cryptocurrencies, not in a disruptive way but a proactive way.
What does this mean for you?
I’m not telling you to invest in cryptocurrencies. I am asking you to look at it. Watch it. It’s going to change the world. And with change comes opportunity!
So, I ask you…would you rather listen to Warren Buffett and Munger or to Singapore and the US?