In part two we talked about the payment possibilities, the risks and unpacked some of the opportunities decentralised finance offers for the world’s unbanked.
Now let’s look at what this whole development could mean for you.
Another way blockchain benefits everyday people is through Non-Fungible Tokens (NFTs). Some of these are just collectables (digital images stored on the blockchain) where basic supply and demand economics drive value. But there is also real-life utility achievable through NFTs. If I was an artist, I could create a piece of work and upload it to the blockchain as an NFT. The art piece is now one of a kind, it’s verified on the blockchain and can be traced by anyone and everyone. No one can pretend to have the same one or sell fakes to monetise intellectual property that isn’t their own. Not only can I sell the art to a buyer for $x, but I can also program the NFT so if/when the initial buyer resells the art to someone else, I get x% of the sale price (a royalty). I’m sure you can imagine the value generated to the artist of years of their art changing hands. NFT's can give ownership rights back to artists who lose them under current NZ law once they have sold the artwork.
Web 3.0 is only just coming into existence and beginning to display signs of its potential. The future use cases enabled by blockchain technology will go far beyond what we see today, but Art 3.0 is already one of them.
Should we be investing in cryptocurrencies?
The short answer is yes. Facebook, Visa, Airbnb, and Uber are some of the largest companies in the world. What do they have in common? They are all networks whose publicly traded equity reflects the value of their network. Crypto networks are the same but instead of equity reflecting the value of the network, it’s the cryptocurrency.
The value of the network depends on user adoption and for crypto, the growth in users is the fastest of any technology in history.
The number of crypto users globally is growing at twice the rate of internet users in the late 1990s. With this adoption comes the possibility of massive wealth creation. History tells us that successful disruptive technology is generally a good investment and crypto is most definitely a disruptive technology.
In comparison to the early days on the internet, we are still very early. Year after year, it is becoming very clear crypto is here to stay. It’s not just a fad. We are past the point of no return. There will be winners and losers. It’s likely many cryptocurrencies will fail, but in its wake will be another crypto to replace it.
For these reasons, it’s important to have exposure to this space.
In saying that, if anyone says you’re guaranteed to make money in crypto, don’t listen to them. No investment is a sure thing and with any investment, there are always risks involved. If there’s potential for higher returns than normal returns, then it usually means there is more than the normal amount of risk involved. Cryptocurrencies are no different. I can’t stress this enough but always DYOR or get on board with an investment manager you respect and trust.
Note: we recognise that many people refer to this as 'speculation' rather than an investment.
Has Pathfinder KiwiSaver invested in crypto
To be clear, we have not invested your KiwiSaver directly into any cryptocurrency and have no plans to. It’s our job to manage risk appropriately and after weighing up both the potential risks and returns we believe investing in the infrastructure being built to support the crypto markets is a better opportunity. Compared to direct investment into cryptocurrencies, it’s relatively lower risk exposure to the exponentially growing decentralised crypto economy.
This means investing in companies that are bridging the usability gap between everyday users and crypto. Particularly those companies with exceptional teams, that are market leaders and have clear product-market fit.
For the sceptics, I’ll leave you this thought-provoking message from Janine Granger, CEO of Easy Crypto, “First and foremost, crypto is evolving. Many misconceptions about the current cryptocurrency environment are historical and based on first-generation cryptocurrencies. This is like saying smartphones will never take off because the first mobile phone weighed over 1kg and only had a 30min battery life”. It’s the same for any innovation, whether it be mobile phones, lightbulbs, or trains, they must start somewhere but continuously iterate and improve. We’re seeing this happen with crypto networks.
-Simon Crotty is an investment analyst at ethical fund manager and KiwiSaver provider Pathfinder Asset Management, which is part of Alvarium Wealth.
Disclaimer: Pathfinder does not recommend anyone buy or sell crypto, this is merely information to help people better understand it.
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