Every crypto bull market creates a new wave of crypto-optimists, while every bear market creates a new wave of skeptics. I’ve seen the skeptics out in force in recent months, and the typical arguments are all over the place:
- There are no meaningful use cases for crypto
- The existing use cases don’t present notable improvements over current systems
- Intermediaries can’t/shouldn’t be removed
- Negative externalities created by crypto aren’t worth the costs
I think most, if not all crypto participants are here to get rich, but to create massive wealth, crypto must be adopted in a real, meaningful way that adds enormous value to people’s lives. A speculative bubble can only take us so far.
When we look at the market capitalization of some other categories/sectors, we can see some potential targets or ceilings for crypto market capitalization:
Obviously, there’s room to grow from the current crypto market cap. Even targeting just the total market cap of gold would mean a 10x from where we sit today. And as for the upper bound of crypto? Well, proponents say it could be a 20x, 50x, or 100x, that crypto will eat the world.
I don’t think trying to predict when/how/why/how big crypto will blow up is necessarily useful–most already have their opinion on the subject. Instead, I want to take today’s newsletter to explore what the world may look like if crypto grows 100x from here.
In 10, 20, or 50 years, how exactly might crypto be integrated into society? Where has it added value? What corners of the world has crypto reinvented?
Let’s take a look:
Regulatory Arbitrage
Much of the innovation that’s happened so far in crypto comes down to bypassing regulatory capture; the idea of crypto allowing users to transact in a way that has previously been restricted by governments.
Take one of crypto’s ‘killer use cases,’ stablecoins. Current alternatives exist–PayPal, Western Union, Wise, but all of them charge significant fees. Wire and ATH transfers exist, but take days to settle, only settle on business days, and often charge meaningful amounts of money. Stablecoins allow investors to transfer money immediately and cheaply.
This pattern repeats itself with tokenized stocks that allow international investors to participate in US markets, with DeFi users getting access to competitive sources of yield (banks currently offer meme fractions of a percent), with permissionless lending protocols allowing users to borrow without getting approval from a third party.
Imagine a world where finance is a system that’s open and democratized to all users–would that not represent a material advantage over the current opaque and permissioned financial system? Could that system take meaningful market share from the world’s $20 trillion traditional finance system? I think so
Onboarding of Real World Assets
As internal sources of yield dry up within DeFi, attention shifts to bringing crypto dollars to new, external yield opportunities. The basic concept is to bring all of the dollars housed in crypto and utilize them externally. Most crypto assets just sit there; what if we lent them out away from crypto in exchange for an interest rate? Utilization is the first advantage of Real World Assets (RWAs) in crypto.
Another advantage of real world assets in crypto? Borrowing: as of now, it’s difficult to borrow against real world cash-flowing investments despite their stability and steady income. Crypto allows users to earn money/yield, and simultaneously borrow against those assets to use or invest somewhere else.
Not only does the onboarding of real-world assets permit new sources of cash flows and yield in crypto, not only does it improve composability, but it also creates new mechanics around real-world assets: imagine being able to invest in a single housing project and the cash flows it provides, or invest in real estate in a specific city.
Permissionless Coordination of Leverage
Crypto rails allow us to interact not as citizens of countries bound by regulations and labor rules, but as sovereign individuals that participate autonomously in our work. DAOs have been frequently discussed in recent years as the future of employment, as new structures under which we can create new products and innovations in crypto.
Are DAOs the future of work? Perhaps there’s a place for DAOs, but I think conventional businesses will always exist. What’s most exciting to think about are the forms of leverage that DAOs unlock; leverage related to capital, leverage related to code, and leverage related to labor. These forms of leverage being autonomously coordinated has never before been seen in history.
Just the mere fact that DAOs might unlock new forms of work and collaboration is enough to be excited about the future of work being enabled via crypto. Yes, DAO governance is horribly inefficient, no, it’s not the future of work yet. But over time, work has trended away from centralization, and perhaps crypto unlocks new frontiers of human collaboration.
The Democratization of Speculation
Crypto has democratized and opened speculation to anyone with a smartphone.
ICOs (initial coin offerings) of 2017 and 2018 allowed participants to effectively crowdfund seed-stage companies without being accredited investors–something that is restricted to high-net-worth individuals in the United States.
Crypto allows international investors to speculate in countries where it’s difficult to do so in other markets (US stocks are hard to access in many parts of the world). By democratizing and creating free speculative economies, we can onboard new dollars to crypto.
The most recent highly-criticized craze was NFTs, still in many ways a highly-active, thriving speculation market. Many people don’t really see the concept as valuable despite many proclaiming that NFTs represent the future of digital property rights, I think both camps have overcorrected. To quote one of my favorite Twitter investors “@iamDCinvestor”:
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These markets being highly open, speculative, and volatile are a feature to many, not a bug. Legendary trader GCR feels the same way:
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I think the ‘speculative’ use case of crypto has enough legs to see us through to a $10 trillion market cap, and we could see alternative speculation-related use cases (tokenized assets, GameFi) all help us see tremendous upside.
Onboarding Developing Countries to Finance
Only 20% of Africans and less than half of Latin Americans have bank accounts. Nearly 1.7 billion worldwide are unbanked, although most of them have access to the internet via smartphones.
This cohort of internet users has already been onboarded to the digital economy: they already shop online, work online, and have digital lives. They’re typically more educated than their parents, are nearly all of employable age, and live in countries that are developing quickly–Africa is on track to see about 500m new middle class consumers in the next 20 years.
Just as we saw these people bypass desktop computers and go straight for mobile, it’s likely we see many of these people bypass traditional financial rails and onboard directly to crypto. Finance is quite frictionless on crypto rails, it’s cheaper, and it’s easier to bring to millions at a time. There’s a huge bull case for DeFi in the developing world.
DeFi brings massive technological leverage and cost savings to finance, taking the value from financial friction and returning it to users. The cost savings and friction reduction both have the potential to absolutely revolutionize how finance happens in the developing world.
Conclusion
It’s easy to see crypto for what it is now and be skeptical about what exists today. It takes a bit more intellectual curiosity to really get under the hood and understand the implications and possibilities implicit to decentralized, autonomous, self-governing, censorship resistant financial systems.
We’ll be here to help you understand them.