There are many discussions around cryptocurrencies being a novel asset class that should make up a small part (1% to 10%) of your investment portfolio. The reason to include crypto is mainly because its strong performance where 10x to 1000x in a few years is quite normal and its correlation with other asset classes being low (although the correlation with stock market has been on the rise in the past year). The reason to only allocate a small portion of your portfolio proposed by most investment experts is that crypto is extremely risky and the high volatility may negatively impact your portfolio.

However, when you take a deep dive into the crypto world, you will likely find many sub-classes of these assets such as digital gold/silver, tech-equity like tokens, bonds-like tokens that produce a yield, stablecoins, and NFTs (Non-Fungible Tokens) which can represent asset un-fungible in nature, for example, Art/Collectibles, Real Estate, Cars/Automobiles or Equipment. And increasingly we are seeing actual stocks or bonds being issued on a blockchain or the synthetic versions of them being traded on blockchains. It is indeed hard to not believe that every asset will eventually live on-chain and thus crypto is on its way to eat up the whole world of assets.

Let’s start with the exponential growth of crypto:

*Source: *Crypto Market Cap and DeFi Market Cap Charts — TradingView

The crypto market cap has grown from $3 Billion to over $2 Trillion USD in about 5 years from 2017 to 2021. It is a 670x growth for 5 years, which equals 509% year-over-year. If crypto keeps growing at the same rate, it will only take another 4 or 5 years to hit over $1 Quadrillion market cap, which is more than the current market cap of global stock market, bonds/credit and real estate all combined.

Then, let’s see how this will play out:

1. More existing assets will be tokenized and migrate to blockchains. The blockchain technology has enabled 24x7 trading and instant settlement, which is far superior to the legacy system. There is no reason that stocks and bonds or other investment assets won’t adopt the new blockchain-based technology which is automatic and has no down time. The instant settlement is a huge deal as investors no longer need to wait another day to withdraw their funds. This trend has already started as Overstock has tokenized their preferred stock (OSTKO) in 2020 and this security token is being traded on their tZERO exchange. For bonds, European Investment Bank (EIB) has issued bonds on the Ethereum blockchain earlier this year.

2. DEFI (Decentralized Finance) is driving adoption of blockchains and tokenization of real-world assets. DEFI protocols are open-source, automated software run on blockchains. You can think of them as automatic banks, insurance companies, exchanges, or asset management companies that have no down time and cannot be stopped. These protocols have no operational cost, as they are smart contracts/code deployed on blockchains and blockchains are global public infrastructure everyone can access. These protocols typically collect a transaction fee when users use them. Yes, no operational cost but a revenue based on usage, positive cash flow from the start. More importantly, it is a lot easier to launch a DEFI protocol than a traditional financial institution due to lack of legal requirements, no need to hire people to run the day-to-day operations, and a very small upfront cost to create and deploy the software. You can essentially copy an existing protocol and make a few changes to its code and deploy your own. Because of this extreme low barrier of entry, DEFI is exploding and Venture Capital firms are piling in to capture a share of this next-generation financial service industry.

As DEFI is growing and providing many types of services at a much lower cost to customers or can provide a much more lucrative interest rates to depositors, there will be greater need for tokenization of real-world assets so that people can access DEFI with these assets. For example, you may want to use your house or your art collections as collateral to borrow some money in DEFI or you want to finance your car-loan with your crypto. Eventually, most of our real-world assets will live on blockchains in the form of NFTs so they can interact with DEFI.

3. Diversification within crypto. Because tokens can represent any kind of asset and can have any kind of characteristics/narratives, you can adequately diversify within crypto. Although we still have a long way to go, as the space is nascent and need more development for the assets to live out their narratives. Nevertheless, over the long term, we will see Bitcoin grows larger and be more stable and really be a safe harbor like gold. We will see most of the fiat currencies being tokenized into stablecoins. We will see more and more DAO tokens or some social tokens act like equity. The dominant smart contract platform native tokens like Ethereum will likely play the role of treasury bond, delivering a risk-free yield. And of course, we will have other types of bonds issued by different types of entities. In short, crypto will have all asset classes ranging from high risks to low risks, fixed income to equities, commodities to securities and lots and lots of derivatives thanks to the open-source programmable money Legos and unlimited imagination of developers.

4. Decoupling of different crypto assets. Crypto has been largely moving together with Bitcoin setting the tone. The market cycle usually consists of three stages: Bitcoin moves up first, then Ethereum snaps up, and then altcoins go wild (this is called an “Alt-season’). And because Bitcoin halving happens roughly every four years, there is a four-year boom and bust cycle where a bull market typically starts with halving and last for one or two years and then sets the stage for a bear market for the next 1 to 2 years. Nevertheless, as the crypto space grows and more assets exhibiting their own characteristics and cycles based on their own tokenomics, they will likely decouple from Bitcoin. Currently you may still need to use other assets to hedge against your crypto, but eventually you will use one type of crypto to hedge against other types of crypto.

5. Metaverse driving new digital economy on-chain. Yes, this is a bit futuristic, and we are still years away from living in a virtual world. What we have now are NFTs and gaming. But, as the sector keeps growing and more gaming companies launching NFTs and moving to blockchains, coupled with the advancement of VR and AR technologies, the metaverse starts to feel real now. One thing is certain, the assets in the Metaverse (including our data, IPs, in-game assets, businesses/enterprises, DAO tokens etc.,) will all be tokens on blockchains. There is no better way to determine the ownership and value of these assets if they don’t exist on blockchains.

6. Talents and Venture Capital rushing into Web 3.0. Silicon Valley and Web 2.0 companies are threatened as their employees are joining Web 3.0 start-ups. VC money is also betting big on crypto’s exponential growth. With both human capital and Venture Capital joining the gold rush, the sector is super-charged to disrupt the world. Do you think these crypto-native start-ups are going to follow the traditional fund-raising trajectory of IPOs? Of course no. Most of them will be DAOs that drop a token.

OK, to sum up, crypto is eating the world. It is important for everyone to pay attention and start learning about it. And it is to your best interest to research and examine the space and find your opportunities. As millennials and Gen-Z gradually take over, crypto is at the center of the largest wealth transfer in history. There will be many ups and downs and challenges, but the trend is set. Buckle up!

There are many discussions around cryptocurrencies being a novel asset class that should make up a small part (1% to 10%) of your investment portfolio. The reason to include crypto is mainly because its strong performance where 10x to 1000x in a few years is quite normal and its correlation with other asset classes being low (although the correlation with stock market has been on the rise in the past year). The reason to only allocate a small portion of your portfolio proposed by most investment experts is that crypto is extremely risky and the high volatility may negatively impact your portfolio.

However, when you take a deep dive into the crypto world, you will likely find many sub-classes of these assets such as digital gold/silver, tech-equity like tokens, bonds-like tokens that produce a yield, stablecoins, and NFTs (Non-Fungible Tokens) which can represent asset un-fungible in nature, for example, Art/Collectibles, Real Estate, Cars/Automobiles or Equipment. And increasingly we are seeing actual stocks or bonds being issued on a blockchain or the synthetic versions of them being traded on blockchains. It is indeed hard to not believe that every asset will eventually live on-chain and thus crypto is on its way to eat up the whole world of assets.

Let’s start with the exponential growth of crypto:

*Source: *Crypto Market Cap and DeFi Market Cap Charts — TradingView

The crypto market cap has grown from $3 Billion to over $2 Trillion USD in about 5 years from 2017 to 2021. It is a 670x growth for 5 years, which equals 509% year-over-year. If crypto keeps growing at the same rate, it will only take another 4 or 5 years to hit over $1 Quadrillion market cap, which is more than the current market cap of global stock market, bonds/credit and real estate all combined.

Then, let’s see how this will play out:

1. More existing assets will be tokenized and migrate to blockchains. The blockchain technology has enabled 24x7 trading and instant settlement, which is far superior to the legacy system. There is no reason that stocks and bonds or other investment assets won’t adopt the new blockchain-based technology which is automatic and has no down time. The instant settlement is a huge deal as investors no longer need to wait another day to withdraw their funds. This trend has already started as Overstock has tokenized their preferred stock (OSTKO) in 2020 and this security token is being traded on their tZERO exchange. For bonds, European Investment Bank (EIB) has issued bonds on the Ethereum blockchain earlier this year.

2. DEFI (Decentralized Finance) is driving adoption of blockchains and tokenization of real-world assets. DEFI protocols are open-source, automated software run on blockchains. You can think of them as automatic banks, insurance companies, exchanges, or asset management companies that have no down time and cannot be stopped. These protocols have no operational cost, as they are smart contracts/code deployed on blockchains and blockchains are global public infrastructure everyone can access. These protocols typically collect a transaction fee when users use them. Yes, no operational cost but a revenue based on usage, positive cash flow from the start. More importantly, it is a lot easier to launch a DEFI protocol than a traditional financial institution due to lack of legal requirements, no need to hire people to run the day-to-day operations, and a very small upfront cost to create and deploy the software. You can essentially copy an existing protocol and make a few changes to its code and deploy your own. Because of this extreme low barrier of entry, DEFI is exploding and Venture Capital firms are piling in to capture a share of this next-generation financial service industry.

As DEFI is growing and providing many types of services at a much lower cost to customers or can provide a much more lucrative interest rates to depositors, there will be greater need for tokenization of real-world assets so that people can access DEFI with these assets. For example, you may want to use your house or your art collections as collateral to borrow some money in DEFI or you want to finance your car-loan with your crypto. Eventually, most of our real-world assets will live on blockchains in the form of NFTs so they can interact with DEFI.

3. Diversification within crypto. Because tokens can represent any kind of asset and can have any kind of characteristics/narratives, you can adequately diversify within crypto. Although we still have a long way to go, as the space is nascent and need more development for the assets to live out their narratives. Nevertheless, over the long term, we will see Bitcoin grows larger and be more stable and really be a safe harbor like gold. We will see most of the fiat currencies being tokenized into stablecoins. We will see more and more DAO tokens or some social tokens act like equity. The dominant smart contract platform native tokens like Ethereum will likely play the role of treasury bond, delivering a risk-free yield. And of course, we will have other types of bonds issued by different types of entities. In short, crypto will have all asset classes ranging from high risks to low risks, fixed income to equities, commodities to securities and lots and lots of derivatives thanks to the open-source programmable money Legos and unlimited imagination of developers.

4. Decoupling of different crypto assets. Crypto has been largely moving together with Bitcoin setting the tone. The market cycle usually consists of three stages: Bitcoin moves up first, then Ethereum snaps up, and then altcoins go wild (this is called an “Alt-season’). And because Bitcoin halving happens roughly every four years, there is a four-year boom and bust cycle where a bull market typically starts with halving and last for one or two years and then sets the stage for a bear market for the next 1 to 2 years. Nevertheless, as the crypto space grows and more assets exhibiting their own characteristics and cycles based on their own tokenomics, they will likely decouple from Bitcoin. Currently you may still need to use other assets to hedge against your crypto, but eventually you will use one type of crypto to hedge against other types of crypto.

5. Metaverse driving new digital economy on-chain. Yes, this is a bit futuristic, and we are still years away from living in a virtual world. What we have now are NFTs and gaming. But, as the sector keeps growing and more gaming companies launching NFTs and moving to blockchains, coupled with the advancement of VR and AR technologies, the metaverse starts to feel real now. One thing is certain, the assets in the Metaverse (including our data, IPs, in-game assets, businesses/enterprises, DAO tokens etc.,) will all be tokens on blockchains. There is no better way to determine the ownership and value of these assets if they don’t exist on blockchains.

6. Talents and Venture Capital rushing into Web 3.0. Silicon Valley and Web 2.0 companies are threatened as their employees are joining Web 3.0 start-ups. VC money is also betting big on crypto’s exponential growth. With both human capital and Venture Capital joining the gold rush, the sector is super-charged to disrupt the world. Do you think these crypto-native start-ups are going to follow the traditional fund-raising trajectory of IPOs? Of course no. Most of them will be DAOs that drop a token.

OK, to sum up, crypto is eating the world. It is important for everyone to pay attention and start learning about it. And it is to your best interest to research and examine the space and find your opportunities. As millennials and Gen-Z gradually take over, crypto is at the center of the largest wealth transfer in history. There will be many ups and downs and challenges, but the trend is set. Buckle up!