In Defense of Crypto - For Advisors

🌐 The Crypto Educator’s Response

In this issue I want to address a post from Nick Maggiulli in his Of Dollars and Data blog.

Nick is COO of Ritholtz Wealth Management, and a writer.

The reason I want to address it is because Nick and many other financial advisors are pretty influential, and his piece might be viewed by other advisors as the word.

I’ll play the role of crypto apologist, but won’t go the crypto bros. method of attacking. I respect Nick and the Ritholtz team, and know there’s always room for discussion and discourse.

Let’s hit some of the points below:

Is the store-of-value thesis worth over $60,000?

That needs to have more questions, like “Why do we need a store-of-value?”

Well, the US currently owes more than it makes. We continue to print dollars at a relentless pace, mainly to services the debt, and GDP isn’t growing fast enough to EVER catch up. Other nations are choosing to not use dollars anymore as they’re fed up with funding our debt. And then there’s all sorts of geopolitical unrest.

Surely these are topics and concerns all advisors are discussing with clients. Bitcoin isn’t the only solution, but it should be in the conversation. Clearly many in GenX and younger are choosing to us bitcoin as a store-of-value, so it should probably be part of the solution set for advisors, along with gold, silver, oil, and real estate.

If you think there will be a need to own scarce assets as we see further inflation and weakening of the dollar, then the assets have value. Whether you assign a value higher than $60,000 is irrelevant.

This is a case where, more people buy, and the number goes up…but there’s good reason for people to buy.

We’re not seeing use cases

Nick agrees with Joe Wiesenthal that this rally feels different because we’re not excited about DeFi or other use cases.

The main story during this market so far is the spot ETF approvals, coupled with the already mentioned macro economic factors bringing institutional investment to bitcoin. And when bitcoin goes up, it all goes up.

In the background, we’ve had more building going on, leading to more use and adoption of the blockchain technology, which ultimately leads to more dollars in the system and higher values of crypto assets.

What are those moves toward greater adoption?

• PayPal issued their own stablecoin on Ethereum

• BlackRock, Citi, and JP Morgan are all talking tokenized assets on various networks.

• Chainlink is partnering with SWIFT to facilitate transfers among banks and chains

All are major financial institutions using the tech so we don’t have to rely on degens, speculators, and traders.

So the adoption by financial institutions is leading to the growth in value of crypto assets.

Financial Nihilism

I read the post from Travis Kling as well and have prepared my own article.

The growth of memecoins and airdrop hunting definitely seems to fit this crticism. There have been far too many projects that launched tokens for quick gains, which seem to have no value.

However, financial advisors need to be cognizant of new metrics, valuation methods, and investment opportunities.

I’m not a huge fan of memecoins, nor of protocols launching tokens with no real value behind them. However, this is partially just a new reality of investing. It’s just following the natural progression of shows like The Kardashians or real Housewives. Now people get to “invest” in tokens and use social graphs to keep the values moving.

In protocols, we see real value in Maker, Uniswap, Chainlink. They don’t fit the traditional view of investments, but I think we need to start thinking differently about valuations.

Summary

Maybe I’m way too far into the echo chamber, but I don’t see nearly as much of a casino as we’ve had in past cycles. This time we have real use cases and real economic situations leading to crypto growth.

Admittedly we do have plenty of speculation and gambling, and that will continue. But within all the hype, speculation, gambling, memecoins, farming, etc., is an ecosystem that is more prepared to bring trillions in assets. For financial advisors that want to learn, and do some research to identify those projects that will grow, and will provide value to the financial system, and to their holders, this is the time to show your real worth to your clients.

I’m always happy to have discussions. I don’t feel this is an “us vs them” situation, but rather, an understanding of the evolution of the system, and a willingness to be open-minded and learn more.

See you next week!

-Adam