The Future of Crypto

Yesterday I was at a small private conference in New York that discussed the future of crypto.  I listened to the presentations along with giving one of my own.  Listening to the other presentations a few points became clear.

1.  The future of crypto is all in securitized tokens
2.  The future of crypto is all about promise right now.  There is no killer app.
3.  Some presenters made the case that there isn’t a bubble in crypto
4.  Hard to transfer assets will be tokenized to unlock value

We are invested and sit on the board of a portfolio company, CFX/OFN, that is well positioned to take advantage of the future of crypto.  What’s interesting to me about the evolution of the space is how closely it tracks with out thought processes back at CME in 1998.  The CME B share is essentially a securitized token.  Our demutualization unlocked a lot of value that was buried in a hard to transfer asset.

I do think that valuations in crypto have gotten way ahead of themselves.  People make the case that crypto isn’t in a bubble because so few people hold crypto.  I don’t agree with that line of logic.  The value of all mediums of exchange float.  If crypto is “digital gold” and a store of value, the value of gold floats.

A lot of money was invested in crypto but the market as it relates to other markets is still small.

I think that a lot of startups slap crypto or artificial intelligence into their business plan and up their valuation.  What they don’t do is look at risk/reward from the investor perspective.  I think the whole crypto sector needs to re-evaluate where they are at and it might mean that many companies have to take a haircut on their current valuation.  That’s painful.

My thoughts don’t have anything to do with the market price of crypto falling.  When CME/CBOT listed futures on Bitcoin, what you saw was the risk premium for holding it come out of the balloon.

There are a lot of hard assets out there that have cash flows associated with them, or potential value associated with them that is buried.  Tokenizing those assets might unlock a lot of value, create more access, increase demand and drive the price of those assets higher.  REITs, Art, Farm land, exotic cars, and almost any other thing you can think of could be tokenized. We will see how that all unfolds.

At our fund, we have consistent conversations about crypto both pro and con.  We try to be able to make either a strong bull or strong bear case.  It helps us when we look at a company to have realistic expectations.