For those of you that know, I have been involved in the digital asset arena for a number of years in a personal and professional capacity. While I have written on the topic extensively, most of this writing has been for private client consumption. What I will do with this article is provide a contextualized primer for the reader who may, or may not, have heard ad nauseam, that Bitcoin (BTC) or Ethereum (ETH) or digital assets generally will change the world.
I do believe digital assets will change the nature of humans' relationship with the physical world and I will write more on the specifics of how I think this will play out in future writings. Since I have referred to this as a primer, I want to detail what I think the big conceptual "white space" is and the core macro implication that all readers need to pay attention to—immediately.
What I will do with this article is provide a contextualized primer for the reader who may, or may not, have heard ad nauseam, that Bitcoin (BTC) or Ethereum (ETH) or digital assets generally will change the world.
Let's set the stage by analogy to a particular historical point in time that I believe we are also in today as it relates to the adoption and understanding of digital assets broadly.
A Particular Point in Time
On August 19, 1996, Netscape Navigator 3.0 was released for Windows 95/NT (only the super geeks will remember how cool it was to have a friend's parent running Windows NT on a home server) and Windows 3.1. For further historical context, Napster's initial release by Shawn Fanning and Sean Parker did not come along until June 1, 1999. I first discovered Napster's Initial Release in my high-school Government class when a classmate told me about this new program that would allow songs to be downloaded on the internet. The only downside to Napster was that it took almost a whole day to download one song via dial-up internet.
Netscape Navigator 3.0 and Napster sprung up almost four years apart; however, they both represented revolutionary developments that people (myself included) did not fully grasp at the time. Netscape Navigator went on to become the foundation of modern day open-source software movement when Marc Andressen and his team released the code online--hat tip to Mozilla Firefox.
Today, BTC and ETH led by the geeks, cyberpunks, technophiles and the global macro hedge fund community are bringing public pensions, sovereign wealth funds, big banks and by proxy Baby Boomers into the digital asset marketplace. I think we are effectively at the zero bound on the y- axis above showing Netscape browser marketshare--in terms of Baby Boomer asset allocation into this new digital asset class. Remember, as a cohort Baby Boomers hold the majority of the collective wealth on earth.
Contrasting Chart 1 where I posited that Baby Boomers' are at the zero bound of the Bitcoin adoption curve , the broader technology community and global macro investing community are in what I believe to the the "Late Majority" category as noted in Chart 2. By extension, the Baby Boomers, in my view, are in the "Laggards" adoption curve position.
Baby Boomers laggard status is important because they hold a majority of global wealth from a financial asset perspective. Thus, even a marginal allocation of financial wealth into this asset class--will drive the price of Bitcoin as a reserve asset upward given the unique supply constraints of Bitcoin as a scarce digital asset. The supply of Bitcoin is limited to 21 million. Bitcoin cannot be printed. Bitcoin represents the first truly scare digital asset and it is primed for mainstream adoption at this particular point in time.
Baby Boomers laggard status is important because they hold all of the wealth from a financial flow perspective. This flow of wealth--even a marginal allocation--will drive the price of Bitcoin as a reserve asset upward given the unique supply constraints of Bitcoin as a scarce digital asset. The supply of Bitcoin is limited to 21 million. Bitcoin cannot be printed. Bitcoin represents the first truly scare digital asset and it is primed for mainstream adoption at this particular point in time.
As the Federal Reserve Bank notes in their most recent data release above, Millennials are broke, on a relative basis, and have still been able to bootstrap the digital asset revolution with the help of early adopter investors. Generation X has some wealth; however, the largest cohort with assets and life left to pay for, is the Baby Boomer generation. The allocation of 1% to 2% of Baby Boomer wealth to this new digital asset class has the potential to re-shape the financial landscape.
Bitcoin today is having its Netscape Navigator 3.0 Gold Moment
Back in August of 1996 the world had no idea of the success that Netscape would have nor how it would lead to browser wars and ultimately create millions of jobs, innovation and become a key component of the open-source software fabric. While Netscape as a company did not last the adoption curve, the alpha generated and global impact was very real. In 1996, the only people that could participate in the financial upside were those directly involved in the product development or the future IPOs.
In 2020, we are all the equivalent of the teenager that has stumbled upon a technology that is not new, but has reached what I believe to be a critical inflection point in its development and adoption curve. More importantly, we are all still able to legally buy into this technology and take advantage of the potential asymmetrical risk-reward setup that Bitcoin offers (along with ETH and other Alt-coins, possibly). The ride will be wild, the volatility high and the losses may be great; however, in a world of over-leveraged governments, devalued currencies, historic levels of unemployment and societal upheaval—the risk of not participating may be unquantifiable.
In 2020, we are all the equivalent of the teenager that has stumbled upon a technology that is not new but has reached what I believe to be a critical inflection point in its development and adoption curve.
In 1990s with Netscape Navigator, the internet was still underdeveloped, clunky, slow and mainly used by a handful of technologically inclined people. Also in the 1990s there was a structural shift in the adoption curve of people (i) buying PCs (ii) signing up for the internet (iii) creating email accounts (iv) sending their first instant message (v) learning how to code and develop early internet applications and (vi) connecting the internet to the broader world. Recall, in 1996 there was no internet banking and Google did not exist--yet.
I posit that history is not repeating itself, but it is rhyming right now. As they say, past is prologue.
Updated September 18, 2020. This discussion is compelling and I felt the need to add this to the historical record.