Investment opportunity, disrupter, fad?
Twelve years ago, in the depths of the financial crisis, a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published under a pseudonym. The next year, software was released making Bitcoin the first operational cryptocurrency. Two years later, it was still a curiosity, and one person used 10,000 bitcoins to buy two pizzas (about $350 million at today’s values). Today, the total amount of Bitcoin (BTC) is valued at $670 billion and about $2.5 billion of BTC is traded per day.
Beyond Bitcoin, there are over 9,000 other cryptocurrencies and a suite of technologies built on top of the fundamental innovation: blockchains. We won’t go into the details here, but suffice to say that we believe this is real innovation, it is here to stay, and it will have a meaningful impact on the world for the next several decades.
So what does this technology actually do? One promise is to allow the exchange of value between two parties with no reason to trust each other, and no trusted intermediary. Our current system of finance relies on us trusting institutions such as banks or governments to facilitate transactions or check account balances. Blockchain can replace those middlemen.
There are other promising areas such as information exchange, smart contracts, and legal organizations that we won’t go into, but all involve replacing trusted institutions with cryptography.
What does this have to do with Dock Street? One of our basic assumptions is that an investment is something that has an expected future cash flow (stocks, bonds, real estate), while things that may only go up or down in price (commodities, gold, Bitcoin, art) are speculations. Given that, our primary focus is on how blockchain will disrupt the current state of the world: which companies will be helped (or created) and which will turn out to be buggy whip manufacturers.
The last year has seen validation of cryptocurrencies from large conservative investors getting involved and governments proposing their own digital currencies. We will continue to discuss the impacts on our companies and stay up to speed on the latest innovations.