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Your financial fortune will ebb and flow in countless parallel, virtual universes

03 June 2022 Gareth Stokes

A decade ago, if someone told you a plot of blockchain-driven land on the Mars 4 metaverse would fetch US$500k or more, you would have handed them a cup of pills and steered them back to their padded room. It turns out yesterday’s madman was more futurist than whack job, because in 2022 hundreds of millions of our global peers are diving in and out of parallel, virtual universes each and every day. This is a tough development for those among us who are struggling to navigate our real-world finances, as we may soon have to add blockchain, cryptocurrency, De-fi, metaverse and non-fungible tokens (NFTs) to our financial planning vocabulary.

An overnight multi-trillion-dollar industry

The cryptocurrency story is not new. It started around 13-years ago with the publication of an unflashy 11-page whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System. Since then, blockchain technology has enabled Bitcoin and other cryptocurrencies to lead the charge towards a multi-trillion-dollar industry that includes De-Fi, digital platforms, metaverses and NFTs to name a few. There are 1000s of cryptocurrencies operating on dozens of blockchains, with the top 200 cryptos boasting market caps in excess of US$108 million each. Bitcoin remains the outright leader with a market cap of around US$580 billion, followed by Ethereum at US$220 billion. These, you will agree, are massive numbers for an asset class (sic) that popped up only a handful of years ago. 

Many global asset managers are still ‘on the fence’ when it comes to cryptocurrencies as an asset class, and understandably so. They are reluctant to commit clients’ funds to a market that is poorly regulated, only partly understood and exhibits staggering levels of volatility. By way of example, Bitcoin’s market cap has fallen from US$1.1 trillion in November 2021 to US$580 billion in June 2022, in the latest of dozens of 50% or greater price corrections since its inception. The good news is that the strongest cryptocurrencies now have enough history to suggest they are here to stay. “The ecosystem around [Bitcoin] is strong enough now to survive these kinds of market dips; I expect that the ecosystem will become part of our lives and remain relevant to us into the future, from a personal, work and investing point of view,” said Hywel George, Director of Investments at Old Mutual Investment Group. 

Exploring metaverses and ETFs

George, who was presenting to a group of financial and wealth advisers during the Old Mutual Wealth Advice Forum 2022, spent some time exploring the world of metaverses and NFTs before considering the investment case for crypto. He made it clear upfront that the fund manager was not investing clients’ funds in cryptocurrencies as yet, before issuing the standard ‘none of this presentation constitutes financial advice or a recommendation to buy or sell’ disclaimer. If Old Mutual were able to invest in crypto assets, George said he would likely include around 2% exposure to cryptocurrencies as part of balanced fund… He was, however, less certain of launching a crypto currency fund due to concerns over the quality of digital coins available to put in it. 

George offered three snippets in support of the metaverse concept being here to stay. First, Facebook changed its name to Meta, and has dedicated 20000 coders and US$20 billion a year to developing its metaverse. Second, the CEO of Nike is on record that his company could generate up to 40% of its revenues from NFT sales by 2025. And third, popular bands are already generating US$20-30 million in ticket sales by hosting concerts in the metaverse. “The metaverse is a big deal, it is going to happen, and it will affect all our lives,” said George. “The investment implication of the metaverse is that it will create another layer of GDP … and that is going to affect how we look at the world and the way we invest in our daily lives”. Some caution is advised because it is unlikely that each and every metaverse that has popped up in recent years will prove sustainable. 

Bitcoin versus Ethereum

This writer felt some sympathy for George, who was gallantly trying to make a case for crypto assets despite his firm’s ‘do not go there yet’ warning… Were he to ‘roll the dice’ on cryptocurrencies, it seems he prefers Ethereum over Bitcoin. The trade-off between Bitcoin and Ethereum comes down to one of efficacy versus scarcity. “There is a maximum supply of 21 million Bitcoin, which provides the scarcity that [underpins] the investment story around Bitcoin; Ethereum is all about efficacy and the blockchain whereas Bitcoin is about scarcity,” said George, who added that 80 of the Top 100 global companies were rolling out some or other blockchain-facilitated processes. Ethereum already backs up around 90% of blockchain transactions, meaning that its price will be supported by the growing volume of such transactions globally. 

What keeps crypto investors and speculators up at night? Well, the first item on a long list is the stomach-churning volatility. Bitcoin has been from US$5000 to US$60000 and back to US$30000 in a short time span, taking the universe of cryptocurrencies with it… Many individuals are concerned about their digital wallets being hacked; and just as many are deterred from getting involved due to the silliness of the digital currency concept. The following from one of my readers recently: “I foresee the biggest implosion of investments in history. How long before people realize that they have had the wool pulled over their eyes?” This view reverberates with many would-be crypto asset investors who base their investment decisions on rational financial assessment rather than speculation and tom foolery. 

Crypto mania will end in tears

There are also plenty of commentators who warn that the current crypto mania will end in tears, with the majority of digital coins disappearing over the coming months and years, in much the same way the dotcom shakeout laid waste to the likes of Boo.com, Pets.com, Web-van and countless others. But the real threat to this asset class comes from elsewhere. Overregulation could decimate the industry, as could decisions by governments to pull the plug on crypto mining over environmental concerns. Yes, ironically, so much electricity is consumed in crypto mining operations that it is seen as more of a threat to the environment than strip-mining for coal or hauling physical gold from a hole three miles into the earth! 

Love or hate the construct: crypto assets, De-fi, the metaverse and NFTs are here to stay. “We are going to live part of our lives in the metaverse,” concluded George. “Crypto will remain interesting as the backbone for blockchain [while] the real estate and baseball cap NFTs [will grow in popularity] as the building blocks for the metaverse we will increasingly inhabit”. He predicted a future of eight hours of activity in the physical world; eight hours of sleep; and eight hours in the metaverse… What do you reckon?

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