Crypto, Blockchain and The End Of Middlemen
By Shane Shin
Is Bitcoin a bubble? This is one of the most polarizing debates in history with credible investment experts taking either the bull or bear case over the years. The debate has certainly intensified over the past 6 months, as there has undoubtedly been more mainstream adoption with global macro conditions providing fertile ground for the store of value argument. Unlike most other financial asset bubbles in history, Bitcoin appears to possess that anti-fragile characteristic which has allowed it to galvanize itself after every major bear market.
The objective of this piece is not to opine on such a well-documented topic as it would be remiss of us to even attempt to add any tangible value to a topic which is so well covered by some of the most intellectual minds in the world. (For the record we are bitcoin and general crypto asset bulls. We have also worked in traditional financial markets for many years and understand the justification for the bear case). Regardless of whether Bitcoin is worth $1000 or $100,000 we believe the past 12 months have shown us that the genie is well and truly out the bottle with what crypto assets and general blockchain technology has to offer the world.
Are the days of the middleman numbered?
Blockchain technology has long been deemed a threat to the middleman, and whilst we do believe this is somewhat generalist and there will always be the need for trusted middlemen, this will shape more towards paying for genuine tailored advice.
After the Dutch East India Company’s public share offering in 1602 public markets were created in order to democratize finance and allow people from all backgrounds to contribute to and attempt to improve their lives from a capitalistic system. This was very much the case with legacy markets at one point and along the way things have changed as the incentives for doing so has helped create huge wealth for the select few. This was inevitable as global markets developed due to the centralized nature required to secure and custody assets during previous generations. Security of assets far outweighed the skewed incentive structure which allowed participants in the financial markets to concentrate profit taking amongst themselves.
As technology advances so too must society and we are now at a stage where we have the technology which can return us towards democracy of finance where the opportunity for economic involvement and prosperity need no longer be afforded to the select few.
DEFI – is it a bubble?
There has been much debate of whether Decentralised Finance (DEFI) is just another bubble in the Crypto asset space but then along came the Gamestop saga after which the genie was well and truly out the bottle. It became plain to see for all the inequities of a centralized financial system, where the decisions and actions of a few bad actors, were able to cost retail investors substantial sums of money in order to protect a few institutions. This would not and could not happen on a Decentralized Exchange so one has to ask why we all are happy paying substantially higher fees to a Centralised exchange that has the power to skew the odds against us when there is a workable solution out there by using a decentralized exchange with an immutable rules based system with substantially lower fees?
Why is it that only certain market participants are able to trade in pre and post market conditions but the retail investor cannot? It makes sense as exchanges needed to be organized in a manner that enabled brokers to show up for work all at the same time. However, with the advent of smart contracts and blockchain technology crypto assets have proven that all participants can benefit from extended trading hours (up to 24 hours a day 365 days a year if needed!). Why should we settle for an archaic system which was formulated to work alongside technology which was available at the time.
NFTs the new ICOS?
The recent $69 million USD sale of a piece of Art (the 3rd highest in history by a living artist) from renowned the digital artist “Peeple” has brought to the public attention the latest segment of the crypto asset phase which has caught fire in recent months. There is much debate over how sustainable the recent asset price inflation of Non-Fungible Tokens and whilst there is no doubt signs of a bubble, we do not have a crystal ball to know when this will pop. What is without doubt is that there are always people willing to pay a premium for rarity and that is what we are witnessing here.
Beyond the hype created by this recent sale at Christie’s what we found most interesting is the realization by many that Christie’s made 9 million dollars in commissions for facilitating this transaction. Historically, this may have been seen as fair to facilitate the transaction, verify the buyer and seller, handle the money etc. In this new world this can all be done via smart contract whereby the buyer is locking up the money when bidding and upon the hammer dropping we would witness an instantaneous transfer of assets between the two parties for a fraction of the cost (if any) that we have seen before. Once again this is pointing towards the middleman being crushed and value flowing directly to those who create it!
At Shorooq Partners we are fascinated by these developments and we are firm believers that we have now passed that tipping point whereby the blockchain and crypto assets are going to play a central role in our personal and professional lives. We are very eager to dive deep into any interesting projects that we see so please do reach out to us!
