For five generations, the buying of equities (and, real estate) has been preached to Americans as the corner stone of building wealth in America.
The greatest investors America has ever known; Warren Buffet, Ray Dalio, and others have demonstrated the prudence of buying and holding of stock in publicly traded companies like General Electric, Bank of America, and Walt Disney World for the long term. Even for generations.
Through good times and bad, both private and publicly traded companies have continued to grow (or, fail), and their value increases (or, decreases) each decade both by their intrinsic value of their holdings (Book Value) and their perceived future valuations of revenue when compared to their earnings (Price to Earnings).
And, the Average Joe consumer buys stock into these companies based on the faith that their partial ownership of these companies will impart onto them and their families an increase in their personal wealth as the valuations of their purchased companies grows in time.
Our end goal is all the same; at the appointed time we, the Average Joe investor, will sell his or her stock and receive an incredible windfall because someone else purchased our stock for their personal holdings for the next generation.
But, what if this mindset changes.
What if the next generation does not buy our coveted stocks? And, instead buys something else? What then…
A NEW ASSET CLASS
Bitcoin has demonstrated to us that wealth can be created, transferred, and stored differently and more efficiently than previously thought possible. Bitcoin was not an anomaly when it was unveiled in 2009. It was a precursor to a new era, where thousands of cryptocurrencies would follow.
Each emerging cryptocurrency is seeking to solve a problem or to fill a need; it may be to transfer money from a father in China to his daughter who is going to school in America. Or, a vendor in America needs to pay for goods purchased in Korea. Or, it may be for someone in Iran who is simply trying to hide their wealth and flee an oppressive country.
At its worse, cryptocurrency allows for the shadow movement of payments to those who wish to remain outside of the scrutiny of the public eye.
It is not unlikely more cryptocurrencies will follow in the future.
FORM FOLLOWS FUNCTION
We have seen shifts in human economic behavior in the past:
- We bartered with goods for eons. That fell out of favor.
- We traded with gold and silver for thousands of years. That too faded and out of date.
- We have been printing currency for only 500 years. Now, we use a plastic card.
Unlike the flora and fauna that we share this blue planet with, humans seek to evolve; to do things better than before. We do not rest on our laurels.
The medium of exchanging goods and services is no different. We are always looking for an easier way of trading for those things we wanted. This will never change.
Louis Sullivan, the 19th century architect would eventually coin a phrase that while intended for architecture, I believe is applicable here;
“Form ever follows function. This is the law.”
The one thing that all the experts can agree on, cryptocurrency allows for an easier, less costly transactions between parties. And, everyone wants to save money; business, governments, people.
No one ever says, “I love overpaying!”
Cryptocurrency is not valuable for its looks, like the way gold or silver is. It is valuable for what it does; it powers financial transactions; and if so, maybe we should think of it more as a fuel instead of a currency.
Let’s go back in time with our Economic Time Machine.
You will have all the knowledge of today and you have a pocketful of money. You are going to make one investment that will last for 150 years and this one investment will make you and your family fabulously wealthy.
Wealthier than anyone has ever seen…
We set the dial of our time machine for the 1870’s. The Industrial Revolution is in full steam. And, the horseless carriages are emerging as the break through wonder of the age; trains, thrashers, steamboats, and the early cars are moving about the countryside.
Because you are from today’s era, you realize, that a fundamental shift in how transportation is emerging, and in the future, everyone will be driving cars. Everyone loves a car; big cars, small cars, muscle cars, fast cars. Cars are a status symbol. A measure of success. Everyone must have one.
You see this amazing opportunity.
You decide you want to invest in the future of transportation; you have two options:
- Option A – Hundreds of auto-manufacturers are emerging. Pick one, any one. Your choice.
- Option B – Invest in oil. It is the fuel of the machines that will be dominating the Earth.
Did you pick a car company?
Because out of the hundreds of American car companies that would emerge, only two would survive into the 21st century. That would be Ford and General Motors. All the others would eventually go bust or be merged into the big two mentioned above. And, of Ford and General Motors, their respective market shares would dissolve as foreign competition would emerge.
Did you pick oil?
In 1870, Standard Oil is founded by John D. Rockefeller and would go on to become the largest and most aggressive of the oil companies until it was broken up by the federal government. If you wanted to buy oil, Standard Oil is your game.
In effect, it is the only game.
Standard Oil is a monopoly. And when President Roosevelt comes into office decades later, he goes to war with Standard Oil.
But, let me ask you, what has powered cars and machines for these almost 150 years? That answer is easy, it is oil. Oil was the fuel in the 1870’s and it still the fuel of choice today. And it may stay like this for another 100 years. For investors in 1970, Oil was the one sure bet as the industrial revolution took charge.
But Standard oil did not die, once broken up by President Roosevelt, its successors would still live on today by other names such as Chevron and Exxon and you would have received stock in those companies as compensation by the trust breaking government.
And, just for giggles, $1.00 invested in Standard oil in 1870, would be worth about $1,632,000.00 today.
How do we define cryptocurrency? Is it a stock, like Bank of America? A commodity like gold and silver? Or, as I would argue, a fuel like oil and gasoline that powers an exchange?
Cryptocurrency as a Stock – Stock ownership implies you own part of a company. A company can grow forever, or it can be dissolved. The longest surviving privately traded company is Sotheby’s, it was privately held since 1744, yet, went public in 1990. The oldest publicly traded company is Bank of New York Mellon which began publicly trading in 1792. Are
Fortune Magazine, reported the average life span of a publicly traded company is only 10 years. A company has 10 years to make its mark in the world before it is sold, dissolved, merged, or goes bankrupt. 10 short years. In comparison, Bitcoin, is now 10 years old (as of this writing).
Cryptocurrency as Commodity – Gold and silver, it has lasted eons and it will last eons beyond us. It is limited in quantity. It is beautiful to behold. And, it is coveted by all for this very reason. I bet you have some on your fingers or wrist both as an investment and as a fashion statement. Yet, no one uses it to buy coffee anymore.
Cryptocurrency are designed to be limited in nature, like gold and silver. However, the underlying algorithms are public knowledge and can be easily learned. This simple fact is what has enabled the rapid growth of competing cryptocurrencies.
At last count, over 1,600 cryptocurrencies have emerged to fill a need, a want, or a goal. And no doubt, more are in development.
This simple fact is what causes a lot of confusion among crypto buyers today, “which one do I buy?”
Clearly, certain crypto currencies have emerged as highly coveted; Bitcoin, Litecoin, Bitcoin Cash. This is what powers their rise in value when compared to the fiat currencies.
But, we cannot wear Bitcoin around our neck like a necklace. In fact, we can’t even see it in its electronic form. We have to have faith, that it is there. And, yet again, everyone who uses cryptocurrency, covets ever more, like those who have gold, covet ever more gold.
Cryptocurrency as a Fuel – Bitcoin was designed to solve one issue; the transfer of value from person to another person without third party oversight. It was not designed for everyone or every situation. It works well in a very specific micro-economic environment. Even, those on a global scale at present.
And as Les Brown, the famous orator, once quipped, “if one person has done it, then it is possible.”
Building on this foundation, current cryptocurrencies that are being released are designed to solve issues for very specific micro – communities. For example:
- Sweatcoin – Sweatcoin is cryptocurrency earned by those in the community that move their bodies. You earn Sweatcoin by simply walking. A micro community of 20 million energetic people earn Sweatcoin every day. A huge boon for those without access to motorized travel.
- Ripple – Ripple is used to allow transfer of currency among cross border users. A crypto currency designed with the international business person at heart.
- Basic Attention Token – Basic Attention Token is designed to compensate you by companies who pay to belong in the network. Their ethos, “You should be compensated to watch commercial advertisement.”
A CURRENCY THAT INCREASES IN VALUE
Those who are developing the crypto currencies of tomorrow are solving needs are wants. When Satoshi Nakamoto (or, the authors using that name) developed Bitcoin, they wanted an ability to send money without involving third parties, almost instantly, around the world.
The ability to transfer money already existed. Satoshi and company simply did it more efficiently. In the process, they created an asset class previously unheard of. And, the cryptocurrencies became coveted both for their utilitarian purpose and as a store of wealth.
This binary function imparted a unique attribute to the cryptocurrency world, that does not exist in the traditional currency world; cryptocurrency so far, increases in value as opposed to loses value like a traditional currency.
Consider the United States dollar, which has always lost value as the United States continues to print money unabated. A multitude of experts will tell you, US dollars are a losing investment.
So, if no one recommends having a savings account and saving dollars, where would we go?
THE NEXT GENERATION(S)
A fundamental shift in American consumerism and investing is underway.
Before 2008, 62% of U.S. Adults owned stock. This has since fallen to 54%. Today’s youth show an ever-declining interest in stock ownership. Just like they prefer to rent a home rather than own a home.
The mantra of owning a home and stocks and squirreling away cash, gold and silver coins worked for the previous generations. But, they may not work for future generations.
These traditional asset classes of real estate, stocks and precious metals are no longer considered the stores of wealth creation they once were, and this mind set may not shift back to traditional ways of thinking.
Do you think like your parents? Or, your grandparents?
Cryptocurrency is a new asset class that offers excitement, serves a utilitarian purpose and now acts as both a stock and a currency. People are drawn to this and this trend shows no signs of relenting. Current combined crypto valuations are in the mega-billions. The trillions are not far off.
I argue that stocks, with less people wanting to purchase them, will begin to lose their perceived valuations. Their intrinsic value may not fall to zero as real estate, buildings, and actual business profits do matter so the companies Book Values hold value for their owned assets, but if no one is buying your stock, won’t the price of the stock go down?
Consider General Electric, one of the great venerable companies in America with a stellar reputation and a blue blood line of business. General Electric was a go to, buy and hold stock for your grandparents and parents.
As of this writing, General Electric has plummeted in value from a high of nearly $60.00 to a low of $7.28. It is trading at ratio of about 4 times its Book Value. Basically, General Electric is now selling at a garage sale price.
No one wants General Electric stock anymore. Times change. Businesses shift. Mindsets differ.
A fundamental shift is occurring in how we exchange goods and services and what we perceive as a safe store of wealth.
This shift in mindset, particularly among the youngest generations who know only a world of full connectivity and instant communication gratification could dramatically upend the traditionalist who believe that owning stocks are the fundamental cornerstone of building wealth for the Average Joe.
I argue that the upcoming generations, having options other than real estate and stock, will begin to turn to the cryptocurrencies and store their wealth in these as opposed to more traditional assets.
This mindset shift would have a tremendous negative result to those who have placed their faith in traditional assets like real estate and stocks as stores of their personal and familial wealth.
The result of this massive shift in thought and investing would be that the world stock markets begin a massive devaluation which make the Great Recession or even the Great Depression period of equity and real estate devaluations seem like a junior varsity exercise in pain and suffering by comparison.
In case you are wondering, this Average Joe buys all the crypto he can lay his hands on. Including those mentioned here.
I Buy Through Coinbase.
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