Over the past few months, there has been an unprecedented surge in the price of Bitcoin, leading to fears that it’s similar to bubbles formed in the past. Many may find it absurd to invest in an entirely new asset class that is not backed by any commodity or government and where price is incredibly volatile, but one can argue that any form of advocacy of digital currency is not entirely baseless looking at the immense opportunities available to us for wealth creation. Before we dive into the pros and cons of investing our time and money into Cryptocurrencies, let us first try to figure out why the traditional investors have prejudice towards the same. Some of the major reasons are:
1. Insufficient and incorrect (far more lethal) knowledge of cryptocurrencies.
3. It isn’t globally recognized and has not been accepted as legal tender yet.
4. Decentralized, i.e., no centralized authority in control over cryptos. Though to be fair, this may never happen as the underlying principle with cryptocurrencies is decentralized finance!
Brewing thoughts, observations & opinions
One of the major reasons people are reluctant on using cryptocurrencies is the lack of knowledge, so before you read this article, I would advise you to try and get a basic understanding of the underlying technology that has transformed the way money is stored and interchanged, i.e. Blockchain Technology. Check this article on cryptocurrencies to gather proper knowledge about the same.
Blockchain Technology is the brainchild of a person, or a group of people known by the pseudonym, Satoshi Nakamoto, back in 2008. Fast forward to 14th April 2021 when the price of Bitcoin hit an all-time high of $64,804.72since its inception in July 2010 (less than a decade, when it was a meager $1/BTC) a lot of investors started feeling that it’s a sure shot route to making millions or even billions. However, the extreme volatility persisting in the cryptocurrencies market has kept a high percentage of investors at bay. If I had to analyze some of the reasons for this volatility in price, here they go –
2. The Musk Factor – Whether the world accepts it or not, the mars Man with 47million followers on twitter, surely influences the pricing of cryptocurrencies. On several occasions Musk has tweeted about Bitcoin, and the elatively new Crypto – Dogecoin, which have undoubtedly resulted in the prices rallying. On 29/01/2021, Musk changed his Twitter bio to #bitcoin, the price jumped from $32,000 to $38,000, and number of trades increased nearly 4 times to 20,000 trades/hour. That was the effect of a single change.
Side note – Musk isn’t the only who wields power to influence pricing. Even the likes of Soulja Boy (an American rapper), Akon (an American singer), and even Paris Hilton (an American nothing), amongst the more prominent investors – Jack Dorsey (CEO & Co-Founder of Twitter) and Michael Saylor (another American, but an entrepreneur). Lol, Americans seem to be flush with money, I wonder why? Also, you may rename this point to “The Influencer network effect”!
3. Institutional Adoption – When large institutions accept bitcoins and other cryptocurrencies as payment methods for their products and services, it is usually a sign of confidence in either the asset, or the underlying tech. Either way, it’s beneficial for holders of the asset. To name a few institutions who have adopted cryptos are –
Applications & Projects of Blockchain Technology
So, the point of this article isn’t to give you pointers on why bitcoin is volatile, but instead to give you reasons to believe why cryptocurrencies are here to stay. There are several applications of blockchain technology, because of which there is sufficient reason to believe that this phenomenon is going to live on, despite industry veterans shitting over the concept.
Let me begin by telling you that digital currencies offer several advantages over their fiat counterparts – including durability, fungibility, scarcity, and transferability. However, they have continued down a volatile path which makes it tougher to trust digital assets, tokens, and coins, let alone trade frequently and invest in them in the long-term. To alleviate this pressure, developers are trying to create a non-speculative digital currency and capture some of these benefits and apply them to traditionally valuable, real-world assets. This process is known as “Tokenization” where digital currencies are backed by assets such as gold, diamonds, and property. To explain in simple terms, tokenization is a process or method of converting some form of asset into a digital token that can be moved, recorded, or stored on a blockchain system. Remember, NFTs 😉
The process of tokenization is nothing, but the conversion of the value stored in some object – a physical object, like a painting, or an intangible object – into a token that can be bought and sold on a blockchain system, regardless of the amount, unlike real-world assets which require either a very large investment, or where an investment cannot be broken down to an acceptable financial situation for the parties involved. This gives small-time investors the opportunity to deal with underlying assets using the amount with which they are comfortable. Some of the top tokenization projects are as follows:
Smart Contracts – First and foremost, unlike paper-based contracts, these are programmed. The rules and regulations pertaining to the contract are programmed, which implies that the software will execute each and every action specified. This eliminates any miscommunication or misinterpretation possible. For execution purposes, the fact that this code is written on top of the blockchain network makes the code of the contract decentralized and unchangeable. Consequently, smart contracts are an exceedingly secure method of ensuring that all terms and conditions of a contract are fulfilled. As computer codes, they provide a transparent method of exchanging money, shares, property, or anything of value, leaving no room for conflict, deceit, or a middleman.
Synthetix – Much like many of the tokens these days, even this one is built on the Ethereum-based protocol, ERC-20, for the purpose of issuing synthetic assets – which is a mirror image of traditional derivative instruments in legacy finance. Synthetix is a protocol which enables the issuance of synthetic assets on the Ethereum blockchain. It supports commodities like silver, gold, indexes, fiat currencies, even cryptos. To explain the use of this platform further – what this does is bring in non-blockchain based asset exposure to the crypto ecosystem, thus reiterating the presence of decentralized finance. This gives crypto traders more options and instruments to trade on, instead of simply buying and selling simple coins, and cryptos.
ATLANT Real Estate Tokens (ATL) – The value of the real estate market, at over $200 trillion, is definitely the largest asset class in the world. The way ATLANT’s tokens work is that prospective investors can buy unique, property specific cryptocurrency tokens that represent partial ownership of a given real estate asset, i.e. unlike the real world, this blockchain network makes it possible for investors to own a few square feet of an apartment as well. ATL token holders are paid their portion of rental income from the properties held by them.
Ownership of real estate tokens such as ATL provides several benefits, particularly for small-scale investors. Partial ownership doesn’t require any time and money commitment for property upkeep or management. ATL’s platform gives the opportunity to select properties listed from all over the world that will provide investors to identify locations where they anticipate a surge or fall in value, thereby allowing investors to diversify their portfolios and manage their risk according to their appetite.
PowerLedger – Imagine benefitting from energy, the same way Uber and Airbnb allow people to monetize their cars and spare rooms. DER – Distributed Energy Resources, is the phenomenon that is challenging the traditional way of maintaining and controlling energy distribution. DERs are a source of decentralized, community-generated energy with a 2-way flow of power. These are smaller generating units which are installed on the consumers’ side of the meter, whether on rooftop solar photovoltaic units, or wind-generating units, or fuel cells amongst others.
What DERs do is allow consumers to share excess energy with others in need, in exchange for monetary gains, whether in terms of fiat currency, or crypto. The way blockchain plays a role in this is to enable trust, security, accuracy, and ensuring completion of the task through smart contracts.
Aave – It is a decentralized lending system, which was one of the first to enable users to lend, borrow, and earn interest on crypto assets. Once again, it is important to point out that what differentiates this from other such DeFi (Decentralized Finance) platforms is the absence of a middleman. Reason, you might wonder? Because the system runs on smart contracts built on the (drum roll please!) Ethereum blockchain network. The developers of this game changing app have made it accessible not only to retail investors, but also institutional ones.
What Aave brings to the table is a challenge to the traditional banking system. In the age-old system, the banks would lend out YOUR money and earn interest, with no profits being shared with the owner of the funds. So Aave allows peer-to-peer lending and both parties benefit without the interference and presence of an annoying banker.
Fun fact – it has approximately $17bn locked in as collateral by lenders.
For any investor taking unnecessary risks makes no sense, unless they have Bobby Axelrod’s FU Money. However, what differentiates an everyday Joe from a great investor is taking calculated risks and seeing a tectonic shift in the future investment market. Any opportunity has the possibility of losing money, but that amount can only extend to the value already invested, whereas the possible gains from the same are difficult to calculate or comprehend. It would be imprudent to not risk something which you are mentally prepared to lose, on a groundbreaking technological development such as Blockchain, when the possibilities outweigh the risks, and success is only on the horizon.
The point of this article is to reiterate that cryptocurrencies are here to stay, whether or not industry veterans and pioneers speak against it. Technological advancements cannot be denied simply because a facet of the global population finds it risky, or speculative. One can always study digital assets, the same way we study and analyze traditional ones.
Seize the opportunity, my friends – Carpe Diem.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action
Thank you Yuva members for organising such a fun and informative lecture. We enjoyed it a lot. Meeting and learning from Mihir Sir was really an amazing experience. And this is not only our feeling but all the students enjoyed his lecture very much and look forward to many such events.
Don't Disappoint your Coffee! Give it a good companion
Subscribe to stay updated! We promise we are too lazy to spam!