Tobias is a managing partner at Senza Limiti and has spent 20 years in the internet space as a founder, consultant, advisor and investor.
In the internet stone age of 1993, Cypherpunks already saw digital money, along with cryptography and anonymity, as a cornerstone of an “open society in the electronic age.” A written framework published in 2008 titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” written by someone operating under the name Satoshi Nakamoto, cited these anarchist roots as well when it defined bitcoin as “a purely peer-to-peer version of electronic cash (that) would allow online payments to be sent directly from one party to another without going through a financial institution.”
It is easy to forget these beginnings of crypto. As the managing partner of a company that specializes in cryptocurrency investments, I’ve observed that over the past few years, increased regulation and government scrutiny have come to the industry. But in a time that defines the monetary policies of governments mostly as “unlimited spending,” I think it might be worthwhile to go back to the principles of digital currencies.
Bitcoin: Digital Gold
The maximum supply of bitcoin was capped at 21 million bitcoins, which, to me, made bitcoin a scarce asset like gold. Today, both the stock market and gold are near all-time highs. Bitcoin, however, is still off its 2017 peak, and significant capital is already moving to crypto assets.
I believe Bitcoin and gold share many similarities — and some of the fundamental concerns. History tells us that governments that rely on monetary policies need to control hard assets. Due to gold’s rising popularity as an inflation antidote in 1933, President Roosevelt prohibited its ownership. I imagine the same could happen to bitcoin. But even if such a ban is imposed, due to its peer-to-peer roots, I believe bitcoin and other cryptocurrencies would survive on exchanges that are not dependent on any specific operator.
Decentralized Finance Vs. Inflation
Decentralized finance, or “DeFi,” uses the decentralization principle to replace traditional finance systems with smart contracts. Without requiring any third party, they introduce a new paradigm for savings, insurance, trending and loans.
Staking is part of DeFi, designed to avoid inflation by using locked capital for transaction confirmation. Blockchain technology can be divided into two types of consensus algorithms that the network uses to settle a transaction. Proof of stake blockchain confirms the transaction by using locked-up tokens as an indicator for whom to choose for the confirmation. Proof of work, on the other hand, works with specialized computing hardware to solve a mathematical puzzle to confirm transactions. Depending on the blockchain, staking rewards vary.
The difference in rewards led to automating the search for the highest payouts. Known as liquidity mining, these platforms are constantly looking for the biggest staking yields.
What could this mean for asset managers and investors?
As I mentioned at the beginning of this piece, I believe it’s worth going back to the principles of cryptocurrency. By “going back,” I mean that in the past few years, it seems to me that the focus has been on the contrary: bringing more regulation to the crypto space. But from my perspective, it’s back to its cypherpunk roots.
Yet, it is its DeFi growth, Bitcoin’s perception as digital gold and censorship-resistant decentralized exchanges that are also defining crypto’s future. For asset managers and investors in the cryptocurrency space, I recommend taking a fresh look at increasing your crypto exposure. If hyperinflation and geopolitical changes occur, I predict that crypto as an alternative asset may grow.
And to dive deeper into the disruptive potential of DeFi, you can consider playing with farming tokens and similar technologies — what I view as the building blocks of new financial applications.
In today’s economic and political stage, I believe crypto’s time could finally have come.