Cryptocurrency is a whole new asset ecosystem with a steep learning curve. Here we’re going share information about what we are investing in.
Investing in cryptocurrency is not for the feint of heart. The risks are extreme. The market it speculative. The technology is nascent. We don’t invest money we can’t afford to lose – and neither should you!
On the other side, the pay offs of understanding your way around the crypto ecosystem have for many long term investors meant…
Life. Changing. Money.
Getting started with crypto and DeFi
Here’s where to start if you already know the whys and whereto’s of investing in crypto and DeFi.
If you don’t, then skip down to our ‘Why we invest in crypto’ section below!
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Why we invest in crypto
Here, laid out on a platter, are all the reasons we invest in cryptocurrency and other digital assets. Whether you invest or not is up to you. But there’s a cracking great story behind the unfurling world of cryptocurrency. It’s going to be a smashing read, so buckle up for a wild ride, and prepare to have your minds blown!
- Where crypto got wings
- Birth of a parallel financial system
- The great financial migration
- The big-ass secret of crypto investing
- Digital assets and the new money game
- Decentralised Finance
- Blockchain: where Life. Changing. Money will be made
- Cryptocurrency and Blockchain ‘network effects’
- Why ‘network effects’ will explode the adoption curve
- The future of digital assets
- Crypto and DeFi resources
Let’s kick off with where the epic story of how cryptocurrency first got its wings…
Where crypto got wings
The debt supercycle has been destroying your buying power for 15 years.
I just didn’t realise it, until I did.
This was the revelation that got me researching cryptocurrency.
It all began with the lowering of interest rates that sparked an epic housing boom in the US in the early 2000s and then came crashing down in the GFC of 2008.
The US Government response to a GFC induced recession in 2008 was to print money. They printed it because not doing so would destroy everyone’s savings, investments and retirement funds. It worked and the economy bounced hard. Mission accomplished. Pats on the back all around.
And so began the money printing that has been eroding our buying power for 15 years.
You see in 2020, money printing went global. This time to avoid a pandemic induced global depression.
What does this mean for your finances?
Printing paper money out of thin air can cause its value to go down. Look at Zimbabwe and Venezuela for example. When the value of a currency goes down it’s called monetary debasement.
Some analysts like Raoul Pal argue that global monetary debasement is playing out now in the value of assets like stocks and real estate. If currency is the denominator, then these assets appear ‘overvalued’ or ‘in a bubble’. But this ‘value’ is relative to devaluing currencies, which we all use as our default reference point.
What if you compare assets to assets, or the assets to the reserve bank balance sheet? Do you see the same bubble?
Add to that some crazy supply and demand imbalances in the global supply chain as a hang over from the pandemic, and inflation has jumped off the charts.
Next, it’s important to think about wages, which are paid in fiat currency. And wages have not increased to keep pace with the rate of monetary debasement over the last 15 years.
The upshot of monetary debasement and inflation is that your ‘money’ is worth less (and not by the rate of inflation) every year. When you money is worth less, you can afford to buy fewer assets to secure your financial freedom. Without assets and with stagnant wages, we get poorer…
By way of example, if money printing rates are around 15% in a year, you need to be making a 15% return on your investments that year or your finances would be going backwards.
It’s kind of like nobody understands how they’re getting screwed, buy everyone knows they’re getting screwed…
Ever heard of the boiling frog parable?
A parallel financial system
As the money printers whirred to life in 2008, so to began the building of a parallel digital financial system.
The system, created on the blockchain, is still being built out today. It’s a system of technology innovation, decentralised money, ownership control, social value, financial opportunity and democratised access.
It started with Bitcoin. People refer to it as cryptocurrency. But it’s much more than that.
Bitcoin began as an idea for a peer to peer cash system that bypassed financial institutions. A system “allowing any two willing parties to transact directly with each other without the need for a trusted third party”. You can read more in the Bitcoin White Paper.
The idea of Bitcoin gathered strength with the loss of public trust in financial institutions following government bailouts during the GFC, using public monies.
13 years later, the monetary policy Bitcoin was designed to combat has gone global. But now, the underlying tech (blockchain) is advanced enough to start revealing its full potential.
And here’s where the story gets interesting enough to pay close attention to…
A great financial migration?
Loads of people are quietly migrating some of their money from the existing financial system to this parallel digital system. They’re migrating it for different reasons. Some to hedge their financial security. Some because they believe their future wealth will be better off for doing so. It’s happening right now as you read this.
From this we can see that blockchain and cryptocurrency is the fastest technology adoption in history by a quantum leap. Just look at some of these stats below from Blockchain Analysis and Bank of America Global Research.
Blockchain analysis indicates that global adoption of cryptocurrency has skyrocketed by 2300% since 2019 and over 88% in the last year alone.
That’s way faster than adoption of the internet.
If there are between 150 and 250 million cryptocurrency users today on best estimates, macro financial analysts like Raoul Pal expect this to grow exponentially to 1 billion users by 2024 at current adoption rates.
Millennials, the first generation born online, are already moving from their bank and broker to fintech mobile banking and investing.
But the way we see it, Fintech might just be the stepping stone.
The big-ass secret of crypto
Shhhh. This is where crypto gets really really juicy. You see, there’s a secret about investing in crypto that you need to know, to work out where the money will be made. The secret is…
…crypto is not about investing in coins and tokens. Its about investing in technology. Software to be precise. Crypto is just the start.
The software technology is called Blockchain.
Blockchain is already changing the world as we know it.
It is changing the financial system.
Revolutionising company business models.
Disrupting many industries worldwide – not just finance.
It’s transforming the internet to Web 3.0.
And leading us into the Metaverse.
Digital assets and the new money game
The new money game we are imagining is all about blockchain’s facilitation of digital assets.
Digital assets bring an entirely new landscape of investing and wealth building.
Here’s what we think that new financial landscape might look like:
1. Global value exchange without nation state boundaries and fees to cross them – exchange value with anyone, anywhere.
2. Instant global financial transactions – programmed on smart contracts, fast, efficient and much lower cost
3. Fractional investments – no matter how rich or poor, there is opportunity for you to build wealth
4. Direct control over your own money – direct peer to peer lending and borrowing, pooling, staking of assets
5. Direct access to financial opportunities – instead of impossible buy-in hurdles controlled by bankers and middle men
6. Ownership economy – direct creator control and monetization of IP so creators keep more of their money
7. Asset tokenisation – monetize what’s valuable to the economy (like your data) instead of giving it for free to Facebook.
8. Real, verifiable digital asset ownership – not paper representing real assets that don’t exist (GOLD anyone?).
DeFi is the decentralisation of financial products and services using software and blockchain technology.
Instead of banks, brokers, and middlemen controlling your access to financial products and services, these products and services are controlled using blockchain and software called “Smart Contracts”.
Smart contracts are bits of programming code written to automate certain transactions between contract parties, once given criteria are met. The blockchain provides trust through a public ledger of transactions, and the Smart Contract gets the value exchange done. No need for middlemen.
DeFi is decentralised because there are no gatekeepers or middlemen controlling transactions (including who can access them at what cost).
And that’s one of the interesting things about DeFi: there are no middlemen so it doesn’t care if you have a million dollars or just ten dollars to transact. Because of this, everyone has equal access to financial opportunities and risks, no matter how much money you have.
DeFi = the democratization of access to financial products and services, giving you and I the same financial opportunities as the wealthy 1%.
DeFi capabilities already mirror existing financial products and services like lending, borrowing, term deposits. These products are getting more sophisticated as the software improves, opening up new investment opportunities all the time.
You can already use DeFi to lend and borrow money and pay or receive interest for doing so. And the rates you earn are much higher than high yield savings accounts offered at a bank or financial institution.
Another characteristic of decentralized Finance is that it uses software (code) to give you direct control of your money and investments. You do need some start up capital to make money with DeFi. But once you have this, you can use smart contracts to access financial opportunities. You can even hyper-compound that capital – all without permission from banks or brokers or financial institutions. And that’s a beautiful thing!
There’s no one to stop you making money by putting buy-in hurdles, exorbitant feess or mind-boggling bureaucracy in front of you.
If you’re interested in reading up on Decentralized Finance, start with part one in our DeFi series.
This series is all about exploring new possibilities to build wealth and financial freedom with DeFi. We’ll be explaining different DeFi ideas like:
- Leveraging (borrowing)
- Yield farming
Cryptocurrency & Blockchain ‘Network effects’
Most people think investing in cryptocurrency is just about buying, holding and selling a particular coin or token. But that’s not what’s really going on.
Investing in cryptocurrency is really about taking advantage of the ‘network effects’ of blockchain technology, tokenomics, the application of smart contracts and Web 3.0.
A ‘network effect’, according to Metcalf’s law, occurs where the value of the network is proportional to the square of the number of its nodes. Effectively, as users come on to a newtork they are incentivised in some way to bring their own personal network. So more users come on and as they do, the network grows and its value increases, exponentially.
Facebook is a good example of a network effect model. Except with facebook, the early users didn’t benefit monetarily from its growth. Early investors did.
The thing about investing in network effect business models is the early birds get the worm if you catch my drift.
Why network effects could explode the adoption curve
In crypto, network effects play out differently. Early coin and token holders are the ones that benefit from the network growing, instead of shareholders. And because of this, these early coin holders also reinforce the playing out of Metcalf’s law. The technology design and tokenomics incentivise existing crypto users to bring more users into the network, and so on, and so on.
This one fact is why crypto and blockchain technology enthusiasts claim that adoption will grow in ways and at a pace we can’t imagine.
Risk management is your number one priority
Beware that although the thought of exponential growth is alluring, cryptocurrency and decentralised finance is not regulated like traditional finance is. This means that if anything goes wrong, you have zero recourse. You are on your own. And things can and will go wrong in crypto. With failed protocols, large scale market manipulation, platforms going down, blockchains being congested, hackers, and rugs just to name a few of the risks. If you are going to invest in this space, risk management is your number one priority. We have a post to help get you started above.
Cryptocurrency and DeFi resources
We’ve put together a comprehensive list of crypto sites, tools, platforms and exchanges to help you learn about cryptocurrency and decentralised finance. If and what you buy is completely up to you!
In crypto, you are your own bank. So take a look at our recommendations for the best way to secure your crypto assets from theft, hackers and cyber attacks.
We’ve also curated a list of cryptocurrency investing books to help you really understand what you’re investing in and why blockchain is changing money, leading to more opportunities to build wealth for savvy financial freedom thinkers.