To read our 2019 recap, click here.
We believe 2020 will be a pivotal year for digital assets. While we will not make predictions on prices, instead, we will focus on a few themes that we believe will emerge and drive the majority of investment gains in digital assets.
Prediction #1: Thematic investing will drive crypto performance
Thematic investing benefits these following crypto areas: Rewards, Structured Tokens, Staking, and DeFi.
- Rewards - Honey was recently acquired for $4 billion by Paypal. Why? Because people love rewards. Crypto companies like Lolli are trying to mimic this in crypto by offering BTC rewards for shopping while Brave Browser gives people who watch ads rewards in its native BAT token. Trading will become more “gamified” (like HXRO and Bitmex leaderboards) where you can earn rewards for your efforts, and Coinbase offers “Earn” where you get paid to learn about crypto.
- Structured tokens - “Tokenomics” refers to the features built into a specific token that help the token accrue value. For example, some have high inflation, others are effectively deflationary (buybacks). But a new crop of tokens are now being structured in ways where they almost have to go higher in price for the ecosystem to work. Tokens like Synthetix (SNX) are a good example, where you have to own SNX just to utilize the system, but you can’t very easily sell your SNX or leave the ecosystem. These “Hotel California” tokens (where you can check in but can’t check out) will likely outperform in 2020, but are difficult to own due to liquidity issues and counterparty risk.
- Staking - In a nutshell, staking is a mechanism to reach network consensus while simultaneously earning a yield (here’s a quick primer on Proof-of-Stake vs Proof-of-Work). While staking is not new, several exchanges (most notably Binance and Coinbase) have recently made it much easier for digital asset owners to stake their tokens and earn rewards. This fits in with the “rewards” theme above, and should continue in 2020.
- DeFi vs CeFi - Decentralized Finance is still tiny, but it is growing quickly and will likely be a major growth engine in 2020. Conversely, a ton of value has already accrued to Centralized Finance (CeFi) companies (Coinbase, Binance, Celsius, Deribit, Bitmex) and this market is getting very saturated. We believe DeFi will be the “Growth Sector” of 2020, while CeFi will be a “Value Sector”. As such, a blind basket of DeFi tokens will likely do very well regardless of which tokens you own, whereas in CeFi only one or two companies will win out and grow at the expense of others.
Prediction #2: Sports and other live events will play a huge part in Blockchain’s success.
Blockchain’s success from “live, in game experience” will be enhanced.
- Tickets - Tickets to events used to be mementos; now they represent the digital identities of fans and can be used to enhance the in-game experience.
- Voting - Sports teams will use tokens to give fans voting rights (like Juventus and the Sacramento Kings).
- Players and Contracts - Professional players (like Spencer Dinwiddie) will create a new form of “Fantasy sports”, but we’ll also likely see it in the college ranks as well.
- Live Music - Warner Bros invested in Dapper Labs this year which presumably will drive music engagement (not just sporting events).
Aside from the factors that affect investment returns, we believe the following narratives will unfold which will affect the general crypto market ecosystem.
- Moving fast and breaking things doesn't work. This is the biggest difference between finance and technology, and crypto finds itself squarely in the middle. But as we’ve seen with Facebook’s Libra hurdles with Congress, in finance, you can’t win with “ask for forgiveness, not permission”. This is why companies who focus on regulation and compliance (like Arca) will emerge victorious in 2020 and beyond.
- More mergers between pick & shovel companies. As mentioned above, there are too many service providers. And while some will grow, most will be acquired or assumed, often at distressed levels. This is already playing out, as the once mighty Circle continues to fire sale its assets.
- Existing companies will utilize tokens. We remain very bullish on real companies that apply token models to applications that already work, rather than newcomers building applications from scratch. Quite simply, it is easier to introduce a token to a community that already exists than it is to build a community. For example, Wikipedia could benefit from a crowd-sourced token, Twitter could introduce a token model that is advantageous for active users, and Starbucks could capitalize on the rewards theme via a digital asset. JP Morgan may even finally launch their “JPM Coin”. Existing, non-blockchain companies will find ways to issue tokens within their equity / debt cap structures. In doing so, these companies will create new revenue line-items while simultaneously enhancing community engagement. This will be incredibly important as the world enters a recession or a low growth environment.
- The Bitcoin halving, while telegraphed and understood, will still be a huge driver of digital asset growth. While we believe in the “efficient market” theory, we don’t believe the Bitcoin halving is priced in simply because 99% of the world is not involved in crypto yet. The market may be efficient within the crypto echo-chamber, but there is far more money yet to come into crypto than what is already here, and if supply reduces at the same time demand increases, price will rise… quickly.
And finally, while what happens within the crypto ecosystem is great for those already in the echo-chamber, the future of digital assets still relies more on growth and adoption from beyond the walls. Below are the narratives that I believe will most strongly push “no-coiners” into the digital asset realm in 2020 and beyond.
- Generational Theft: From climate change, to central bank debt-fueled “growth”, to “Ok Boomer”, younger generations have had enough of kicking the can down the road at the expense of their futures. This theme will only get louder.
- Data Privacy: The FANGs won the 2010s. But they won so demonstrably that there is now a loud and growing pushback over data collection and privacy. The path forward for many consumers is to loosen the FANG’s grip, which can be achieved via decentralization. This anti-FANG crusade may even seep its way into government.
- Digitizing Everything: Money is the last thing to be digitized, and moving money seamlessly from one app to another without a bank or middleman will just seem obvious… soon. Lots of things seem obvious after the fact.
- Nowhere Else to Turn: Investors will begin to realize how few opportunities there are in traditional asset classes, and will stop buying worthless assets that promise growth in favor of new technologies that are actually growing. When (if) the music stops for equities, they will turn to protection of assets rather than growth of assets. To protect against systemic banking risk and/or currency devaluation, crypto will be a choice. In 2011/2012, every smart investor tried to play the “European bank collapse / double-dip recession” theme by shorting equities, buying sovereign CDS or buying gold -- none of these worked. In 2011/2012, Bitcoin was barely a thing -- now it is, and investors know it.
- Avoid Melting Ice Cubes: Most large financial institutions are late to the party. As mutual funds moved to ETFs, as older financial advisors moved to robo-advising, and as fee-based businesses moved to no fees -- giant financial institutions will continue to realize that it is better to be in the growth industry than to be the melting ice cube. No asset class has more growth potential than blockchain.
- Distrust of Financial Institutions by Millenials: Though this narrative has been around for the past five or so years, millennials continue to shun traditional financial institutions and are looking towards fintech alternatives. The top 10 finance apps are NOT traditional financial firms. As this trend intensifies, crypto will benefit.
We’ll see how many of these predictions turn out to be true in 2020.
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