Crypto's Impact Is Growing

Apr. 21, 2022 11:46 AM ET3 Comments
John M. Mason profile picture
John M. Mason
15.83K Followers

Summary

  • There is more and more evidence that the political world is paying attention to all that is going on in the world of crypto.
  • This is evidence that investors need to pay lots of attention to what is going on in the crypto-space because it is more evident than ever: crypto is the future.
  • Special occurrences have brought us to this point, the pandemic, the Federal Reserve's excessive monetary efforts, and the changing technology.
  • Once here, however, the impact of crypto will not go away.
  • A transition like this cannot be ignored.

Global connection

piranka/iStock via Getty Images

Just how much is the world changing?

Well, if one looks at how politicians are starting to look at the crypto industry advances, the argument could be made that the world is changing in significant ways.

And, this is important for understanding the economics of the situation and how this movement will be changing the future structure of industry and finance.

Eva Szalay, writing in the Financial Times, argues that:

crypto is seeping into politics all around the world."

Maybe one reason people are not aware of the magnitude of this movement is that the press seems to be focusing mostly upon the advancement of cryptocurrencies, something that is more sensational and, hence, more capable of building up readership.

The fact is that cryptocurrencies are just one component of the growth in the whole crypto-world and crypto is impacting more and more areas through the use of blockchain technology and the expansion of understanding of how information dominates the world.

The crypto-industry is impacting more than just the financial sphere and Ms. Szalay believes that the next election will contain more initiatives connecting crypto with other issues like crypto's contributions "on climate, on social justice" as well as in areas like art and communications and innovation.

And, the growth of political concern on crypto is not local, it is global in nature.

For example:

In early April, the UK's Conservative government announced a range of measures designed to turn the country into a global hub for digital asset business, issuing its strongest endorsement of the sector to date."

The calls for action are coming from all over the place.

The Two Reasons

There seem to be two reasons for the rising importance of crypto.

First, there is the political reason.

The crypto-revolution has come from the libertarian side of things. Advances in the crypto world have, to a great extent come from sources that would like to remove central control from economic relationships and from transactions.

In particular, they would like to remove the government from the picture.

In the case of cryptocurrencies, the effort has been to remove the Federal Reserve and the payments system from financial transactions.

The idea is to allow payments to go directly from the person that is paying for something to the person receiving the payment, eliminating any intermediary that might play a role in transmitting the exchange.

Second, crypto has become economically important.

Ms. Szalay writes:

Bitcoin and its peers have surged in popularity since the start of the pandemic and millions of people around the world now own digital assets, which are worth more than $2.0 trillion in total."

Crypto cannot be ignored anymore because of the economic impact that it has already had on the world.

Coinbase has even reported that this value exceeded $3.0 trillion in early November 2021, at the height of the market.

The movement of issues relating to crypto-industry concerns into the political sphere just confirms the growing role that crypto is going to play in the future and points to the fact that crypto is going to be a major component of many things in our lives.

But, there is more.

The Role Of Age

Peter Thiel, the libertarian tech investor and a co-founder of PayPal, identified, at the recent Bitcoin 2022 conference:

cryptocurrency as part of a 'revolutionary youth movement' that was out to overturn traditional finance.

Mr. Thiel argued that "financial leaders had deliberately sought to suppress bitcoin to protect their own power."

He named people like Warren Buffett, Jamie Dimon of JPMorgan Chase, and Larry Fink, of BlackRock as part of the "old guard" that was working to keep the traditional finance on top.

It is the younger contingent, Mr. Thiel contended, that was bringing about the change, a change that could not really be stopped.

Ms. Szalay brings on the argument that:

The appeal of crypto as a potential vote-winner is to understand when looking at the numbers, especially since digital assets are primarily held by younger people."

She presents information indicating that about 18 percent of adults in the UK and in the US own digital assets.

These owners are mostly young. For example, more than 40 percent of crypto owners in the United States are under the age of 35.

And, there is no question that these numbers are growing.

Almost half of all crypto owners in the US, Latin America, and Asia-Pacific brought digital tokens over the course of last year."

Furthermore, the overwhelming number of new businesses created in the crypto space are led by people under the age of 35.

It is also true that when it comes to innovation and technological change, younger people tend to be supporters of that change regardless of political affiliation.

Growing Wealth

Ms. Szalay speaks of how "Bitcoin and its peers have surged in popularity..."

One should note the timing connected with this statement. The popularity has surged "since the start of the pandemic."

I have written many posts over the past several months about how the largess of the Federal Reserve beginning during the pandemic and subsequent economic recession, generated a massive flow of liquidity into financial institutions and financial markets.

Crypto industries benefitted greatly from this surge.

As I have shown over and over in these articles, the rise in the money flowing into the crypto world inflated values tremendously. And, as I mentioned above, we find that the value of digital assets reached $3.0 trillion in November 2021.

It can be noted that the price of Bitcoin hit its historical high of just under $70,000 on November 10, 2021.

The value has declined since these peaks, but, as Ms. Szalay confirms, even though these prices have dropped the value of crypto assets still remains around $2.0 trillion.

These numbers are nothing to dismiss.

Because of all the money floating around, many new startups are entering the crypto field and many of these new entries into the marketplace are really "making a killing."

Take for example "The 26-Year-Old Dropout Lapping the Hedge-Fund Field" in the Wall Street Journal.

This article is about fund manager Eva Shang of Legalist, Inc. who dropped out of Harvard University when she was 20 to put into place her new idea relying on creating a database and applying proprietary Artificial Intelligence to generate returns. The essence of the company is it is a technology-powered investment firm.

In 2016, Peter Thiel provided her with a $100,000 grant to get her business going.

Her gross annual return has been around 25 percent.

I work with a lot of young entrepreneurs and have done so since the early 1990s. I have never seen so many new ideas and young, energetic, intelligent people moving into this space and I have never seen so much money supporting their efforts.

The politicians cannot ignore all that is taking place in this world.

Investors Pay Attention

Investors have got to pay attention to what is going on.

This is the future.

And, the politicians are going to be playing a role in this future.

Sheila Warren, chief executive of Crypto Council for Innovation, a US lobby group states:

"I can say this with certainty: more and more candidates whether incumbent or challengers are paying attention to crypto."

Investors must pay the same attention... or, more.

This article was written by

John M. Mason profile picture
15.83K Followers
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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