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Bitcoin is a paradigm shift beyond Wall Street

June 7, 2020

When the Goldman Sachs report came to light and ruled out Bitcoin’s status as an asset type, there was a huge backlash from the crypto community. That is understandable andFor those building in the crypto industry, the points against Bitcoin made no sense.

For almost a decade of my career, I was a banker at Goldman, but decided to leave Wall Street to join an incredible group of people at OKCoin, who are tasked with making cryptocurrency trading easy and accessible to everyone around the world close. . Having been on both sides, I can understand why Goldman Sachs’ analysts made certain arguments in their recent position. You may not agree, but in principle I believe it is important to be open to different perspectives in order to build the right crypto ecosystems that can lead to massive accomplishment.

Emerging asset types take time to be recognized

Goldman analysts argue that “Bitcoin is not an asset type”. Include “traditional” in your statement and we are closer to reality. It is important to remember that each asset class has its first years and that it takes some time for a new class to be recognized by large financial institutions.

Bitcoin is a paradigm shift beyond Wall StreetBitcoin is a paradigm shift beyond Wall Street

For example, the data shows that private equity and venture capital have outperformed traditional asset classes such as bonds and equity, especially over a longer period of time.

However, it is easy to forget that none of them were considered an asset class when modern portfolio theory was born in 1950. Modern private capital emerged in the 1940s, but did not gain momentum until the 1980s. Groups such as Kohlberg Kravis Roberts began to acquire companies.

Similarly, venture capital, which has contributed significantly to the Silicon Valley boom and now dominates the current list of the world’s leading public companies, was founded in the 1960s, but remained an investment method. Pretty specialized until the first internet bubble in the late 1990s. It took some time before both were mature and generally accepted by investors as alternative asset classes.

Vision and courage are also required so that investors can understand and accept an emerging asset class that contradicts known assumptions. Those who can accept this have the opportunity to get a higher than expected return.

The change in the financial paradigm

Goldman analysts rightly say: “Bitcoin does not generate cash flow like bonds” and, “It also doesn’t generate any profit [como el capital]The fact is that Bitcoin (BTC) was not designed to fit into such existing frameworks. Would you expect the US dollar to generate cash flow like bonds or like stocks to make profits? Bitcoin is a dramatically new asset class – it’s a native internet currency.

Bitcoin is a continuation of the paradigm shift introduced by distributed computing, the foundation of the Internet. As a result of this change, information and communication have become increasingly democratic in recent decades. Individuals are not only more responsible for the exchange of information, but above all for the creation of information.

Our lives are digitized. Each of us generates more and more individual data through various online activities. This change has affected almost every aspect of our lives except finance. Central banks are at the center of money creation, commercial banks are at the center of the financial system that controls financial resources, and large Internet companies are at the center of collecting and monetizing our individual data. We haven’t seen any democratization of value creation, value distribution, and / or value transfer, as before Bitcoin was created in 2009, there was no practical way to digitally transfer values ​​without an intermediary who could promote trust. .

Based on a distributed node system, Bitcoin democratizes the transfer of value. It is the first native internet token to be created entirely decentrally. It is not issued by a controller from a third-party provider, but is prescribed in the code and works through decentralized activities of all network participants. It shows the possibility of a responsible financial system in which the money supply is not dictated by a single entity and is therefore free from inflation.

For those of us who live in the United States, it can be difficult to understand that Bitcoin has real use cases in emerging markets that are suffering from significant inflation. For example, our customers in Latin America turn to Bitcoin to protect their assets. Some traders also use Bitcoin to solve cross-border business transactions. There are no limits, no permits, no censorship, and you can get in and out of your position around the clock.

It is equally important that Bitcoin shows us what a future crypto can look like, in which individuals not only create and distribute information, but also add value to their online activities. This value could be confirmed by a predetermined consensus mechanism with no intermediary in the middle, which creates a solid foundation for a free and inclusive global system. Finally, individuals could take control of their own data, be rewarded with a range of agreed incentives for their online activities, and do business freely with other people. Before Bitcoin, a secure and sovereign digital future like this was never possible. Historically, such paradigm shifts trigger significant value creation.

It should come as no surprise that traditional wealth managers don’t yet accept cryptocurrencies. The fact that Bitcoin is not fully adopted is why we are all here – the crypto community is not trying to do what has already been proven. We are here to create and enable the unimaginable.

An advantage for risk-tolerant, ultra-modern thinkers

The question of whether Bitcoin is an asset class is the wrong question. The correct question is: Who can invest in crypto and what role can it play in your entire investment portfolio? We shouldn’t be talking about investing in a vacuum. When a person builds up their investment portfolio, the asset classes included in the portfolio always depend on the goals, schedule and risk tolerance of the investor.

Bitcoin is considered a volatile asset and is therefore of course not suitable for those who have a short investment horizon and are extremely risk averse. However, if you are looking for long-term returns and are willing to exercise due diligence, you may be looking for a great alternative (or addition) to bonds and stocks, and even private equity or equity investments. Risk.

Similar to private equity and venture capital investments, Bitcoin has the potential to generate superior long-term returns. They are also similar in that they require more care and more active management for superior performance. The main limitation of these investments is that they generally require a minimum net worth from investors and are not liquid. Vice versa, Bitcoin is very liquid (traded around the clock worldwide) and has no minimum investment barrier. It is a truly democratic form of investment that is available to everyone.

Goldman’s bearish attitude serves as a reminder

When Goldman Sachs’ analysis concluded that “a value whose appreciation depends primarily on whether someone is willing to pay a higher price for it is not a suitable investment for our customers,” they implied that cryptocurrencies (including Bitcoin) this is a bubble that has no inherent value.

Instead of being offended by such a statement, I actually find it a very strong and helpful memory. It reminds me that we still have a long way to go before cryptocurrencies become commonplace. There remains confusion about what Bitcoin is and how it works. The crypto community needs to come together and provide better education to promote mass adoption.

It also reminds me that our industry is still at an early stage. We will not convert infidels via Twitter. We have to focus on laying the foundations for our future. This is why we at OKCoin have a double focus: we make it easy and safe to buy and sell cryptocurrencies worldwide and are a strong supporter of the open source developer community (our most recent contribution is a $ 100,000 grant to the BTCPay server). . We have to work hard to ensure that cryptocurrencies don’t become a bubble.

Finally, it reminds me as an investor that this may be one of the best times to continue to invest time (and money) in Bitcoin before reaching a consensus. Two golden investment principles that I believe in:

  • Always be humble and question your own assumptions
  • Always look for areas where consensus has not been reached

Goldman’s conservative view of Bitcoin reinforces the opportunity that the crypto community has identified as a pioneer.

“Open your eyes, look to the future”

Elon Musk recently provided an example of what happens when the development of an innovative concept becomes reality. Recently Publicity A tweet that says “Open your eyes, look at the sky” that channels Queen’s words from Freddie Mercury. These were inspiring words when we witnessed the launch of the SpaceX spacecraft Dragon Endeavor at the weekend. It’s an incredible example of what happens when vision and action come together to make a big impact. “Open your eyes, look to the future” – that’s how I feel about cryptocurrencies, and I hope you will too.