Podcast Summary
Discussing the crypto market with Chris Biernsky from Ark Invest: Ark Invest, a forward-thinking investment manager, shares insights on the crypto market's current state and debunks the bubble theory, emphasizing its potential as a disruptive innovation.
Principal Asset Management, as a real estate manager, leverages a 360-degree perspective, combining local insights and global expertise across various asset classes. They identify compelling investing opportunities by applying local insights and global perspectives. Meanwhile, in the world of finance, the crypto asset market has been experiencing significant frenzy, with assets like Bitcoin and Ethereum seeing remarkable moves. Chris Biernsky, the blockchain products lead at Ark Invest, joined the podcast to discuss this phenomenon. Ark Invest is an investment manager that shares its trades and research publicly, focusing on disruptive innovation through its ETFs. Their Next Generation Internet ETF includes themes like machine learning, cloud computing, Internet of Things, and crypto assets. Chris provided insights on the current state of the crypto market and addressed whether it's a bubble or not, as well as the reasons behind the excitement surrounding this area.
Valuing Crypto Assets: Current Utility vs Expected Utility: Crypto assets like Bitcoin are valued through a combination of their current utility and discounted expected utility, as traditional valuation methods don't directly apply.
As a blockchain product lead and buy-side analyst specializing in crypto assets, the speaker has firsthand experience with the evolving world of digital currencies. Their background includes early exploration of Bitcoin during its college days, but it wasn't until joining ARC in 2014 that they fully embraced its potential. Valuing these new assets is a complex question, as established models for stocks, commodities, and currencies don't directly apply. Instead, the speaker focuses on a combination of current utility value and discounted expected utility value. For instance, Bitcoin's use in remittances demonstrates its current utility, while its future potential drives its expected utility. As the crypto asset landscape continues to evolve, new valuation techniques will emerge, reflecting the unique characteristics of this innovative asset class.
Bitcoin's potential value based on market capture: Bitcoin's potential value could be significant if it captures even a small percentage of large markets, such as remittances or gold.
The potential value of Bitcoin could be significant if it manages to capture even a small percentage of various large markets. For instance, if Bitcoin captures 10% of the $500 billion remittances market, it would need to store and facilitate $10 billion worth of transactions in a year. Assuming a similar velocity of money as the US dollar, this would mean Bitcoin would need to have a market value of around $10 billion. Similarly, if Bitcoin captures 1% of the $2.5 trillion gold market, it would need to store and facilitate $25 billion worth of transactions, requiring a market value of $25 billion. These are just two examples of potential use cases for Bitcoin, and the actual market value could be much higher if more use cases emerge. It's important to note that these calculations are based on certain assumptions, and the actual market value could vary. Additionally, investors can gain exposure to Bitcoin through publicly traded ETFs, such as ARKW and GBTC, but should be aware of the premiums these trusts often trade at.
Understanding Initial Coin Offerings (ICOs) and Aragon's Role: ICOs are decentralized fundraising methods using blockchain technology, allowing projects to build decentralized software solutions without generating cash flows or having traditional earnings calls.
Initial Coin Offerings (ICOs) represent the intersection of crowd funding and blockchain technology. ICOs allow projects to raise capital decentrally by utilizing the functionality of blockchains to store and transfer value. An example of this is Aragon, a platform built on Ethereum that facilitates decentralized autonomous organizations. Aragon is not a company but a protocol, and its business is to provide infrastructure for other protocols to run on Ethereum. Participating in an ICO involves evaluating the use case and understanding the project's goals. Unlike traditional companies, ICO projects don't generate cash flows or have quarterly earnings calls. Instead, they focus on building decentralized software solutions.
Decentralized platform for mass capital acceptance and dispute resolution: Aragon is a decentralized platform that uses cryptocurrency for mass capital acceptance and facilitates decentralized courts for conflict resolution within decentralized organizations. The native Aragon token plays a crucial role in these processes and holds potential value for token holders as more organizations build on the platform.
Aragon is a decentralized platform that uses cryptocurrency for mass capital acceptance and facilitates decentralized courts for conflict resolution within decentralized organizations. The native Aragon token plays a crucial role in these processes, as it is used to pay out individuals who participate in the courts and to facilitate further use cases that may evolve over time. Aragon is targeting businesses looking to establish decentralized autonomous organizations, which operate differently from traditional entities, such as an insurance company. Instead of relying on centralized courts for dispute resolution, these organizations would use the masses and the Aragon token to make decisions. The more organizations that build on Aragon, the greater the demand for the token, creating potential value for token holders.
Insurance Industry's Transition to Decentralized Autonomous Organizations: The insurance industry is moving towards DAOs, but mainstream use and users are increasing slowly while speculators dominate. Ethereum is a popular platform, but long-term growth is the focus.
The insurance industry is transitioning from traditional processes to decentralized autonomous organizations (DAOs), where policies and procedures are written in code. These DAOs are expected to run themselves, requiring a platform like Ethereum for compute power to process decisions. However, while there's excitement and investment in this space, the use of these tokens and decentralized apps (dApps) is still largely in the development stage. Mainstream use and users are increasing, but for now, there's a significant presence of speculators. Ethereum, in particular, has a growing developer base but lacks mainstream application usage. It's important to remember that the development of new technologies like these takes time, and the focus should be on long-term growth and potential.
The Role of Speculation in Cryptocurrency Innovation: Speculation drives innovation in cryptocurrencies but can lead to overbuilding and corrections. Projects work to dissociate token value from network usage costs and bring new capital for protocol development.
While the cryptocurrency space, specifically Bitcoin, is still relatively young, it's important to recognize the role speculation plays in driving innovation. As history has shown us, during past booms like the railroad and tech/telecom industries, speculation often leads to overbuilding and eventual corrections. However, this pattern is a predictable part of the innovation process. Another concern raised during the discussion was the potential for speculation to discourage actual usage of cryptocurrencies. For instance, if the price of a token associated with a particular platform, such as Ethereum's ether, continues to rise, it could make using the network more expensive, which might deter some users. To address this issue, projects like Ethereum are working on ways to dissociate the rise in token value from the cost of using the underlying network. Moreover, as tokens accrue value, they also bring new people and capital into the ecosystem, which can help fund protocol development. It's a delicate balance, but it's essential to find a way to keep the price of using these networks stable as their tokens gain value. Overall, while speculation can be a double-edged sword, it's crucial to recognize its role in driving innovation and finding ways to mitigate any negative consequences.
Managing Capital Flow in the Venture Capital World: Chris Biernisky of ARK Invest discusses the complexities of managing capital flow in the venture capital world, comparing it to a 'sci-fi world'. Potential bubbles exist, but new entities and mechanisms continue to emerge.
In the world of venture capital, managing the flow of capital is crucial for the long-term success of projects. Too much capital moving between different protocols could potentially harm the value being built. Chris Biernisky of ARK Invest discussed the intricacies of this complex ecosystem, comparing it to a "sci-fi world." While the current environment may be subject to speculation and potential bubbles, the development of new entities and mechanisms in this space is fascinating. As listeners, we can follow Chris on Twitter @ARKBlockchain for more insights. Additionally, check out the new Bloomberg podcast "Money Stuff," where Matt Levine and Katie Greifeld delve into Wall Street finance every Friday.
