Signals of pending Global Recession place pressure on Family Offices to move into Alternate Asset Classes as Blockchain and Crypto Investments have forced their ways into Diversified Investment Strategies…
2019 will trigger a significant shift of capital moving into Crypto Asset Classes focused on Asset Backed Securities manifesting as a tokenised store of value that can be traded in secondary markets. These new ‘exit ramps’ offer the promise of delivering liquidity to illiquid markets (real estate, land, small stock shares) through the democratisation of investments, where the entry level is set purposely low, having the potential to create inclusive super-liquidity.
Recession is inevitable and everyone knows it…
It is becoming very clear a Global Recession approaches fast where key indicators are pointing the way, as all asset classes are moving down. But this recession will be far deeper than the recent past, as global debt burdens of a creditocracy have grown exponentially since 2008 bail-out, which wasn’t really a bail out at all. Rather central banks were merely putting ‘pipstick on the pig’.
Capital Markets, the S&P and Dow have the worst close since the Great Depression. The US markets are cooling and there are continued concerns about central bank policy led by the FED who are starting to raise Interest Rates.
As the Dow Jones Industrial Average confronts its ugliest December loss since 1931 the time of the historic Great Depression, there is another notable way to put these losses into historical context. There are real discussions to do with the devaluation of the US dollar that may be the only option for the US economy to survive, as a long winter approaches. It looks like Kondratiev was on the money all along as predicatable cycles once again reveal themselves!
Public concerns remain over US and China Tariff Wars as US employment data looks increasingly bleak. The EU was always planning to enforce a hard Brexit on UK to serve as lessons to others, adds another dimension to a global geopolitical crisis of confidence by the people in all governments across the world, that will push democracy to the edge in 2020.
Political systems are failing everywhere. Prompting the end of the EU in its current form within 5 years, as the PIIGS start to topple and the imminent collapse of Deutsche Bank drags the Euro-zone down with it. France is no novice when it comes to revolution and Macron is more or less finished.
The 37 year Bond Bull run in has ended, and with property and land stagnating January saw an uptick in gold volumes and prices as smart money starts to plan their escape routes looking for safe havens. BOTs have hijacked trading, shrinking margins to a short term basis, the economic data has been smoothed on short time horizons and the long term view lost, replaced by market sentiment that focuses on entirely the wrong economics data, where excessive Fake News and the sensationalist, government influenced media, reports to get ‘bums of seats’ rather than what is good for kin, country and mankind.
It is happening people. The entire system of capital, government, of trade is not working. Phase one will see the collapse of the current Capital Markets. Kondratiev summed it up well as we enter the “start of Inflationary cycle” that may last for decades, in this case until at least 2030. Stage two will be civil unrest as interest rates policies will push bankruptcies and repossessions because the working classes cannot cover their economic and civil debts. Stage three where governments wage a war against the people to keep the power. Stage four gets rather nasty and historically ‘people in power lose their heads’.
A new hope, at last a hard currency as a store of value…
But this time it is different, and armageddon will be averted.
“For the first time we have a hard currency that offers an economic system called the Bitcoin Blockchain, where fiscal policy and control is not decided by a government or controlled by a central bank” Nick Ayton Founder Chainstarter Group
The current Fractional Reserve Banking model is a system that remains unaudited and manipulates supply and value through a broken Keynesian economic theory of interest rate policy that has repeatedly confirmed is no longer the answer, preferring wars to that of economic policy reform.
Never before in times of pending economic gloom has there been a new path, that comes with new safe haven options that opens the door to new asset classes based on the tokenisation economy of everything. A new generation of Asset Backed Securities without the baggage of centralised fear and greed, and without the cost of a bloated constipated central authority whos fees and charges are passed onto commerce and the public. A system that can operate freely despite geopolitical efforts to stop it, despite the media encouraging the ‘haters’ to come forward. A decentralised economic system where everyone can play by the same rules, and where investment returns are delivered because a decentralised operating model is simply better and more efficient.
The peoples Internet, the peoples currency is a new baseline, where in a Bitcoin world there is no concept of debt, of settlement and you don’t have to be subservient to the creditors who want you to default, so they can take you possessions. There is a storm coming that will create new growth opportunities in new equity products that delivers ownership in new decentralised business models that can scale at pace. Models that deliver extraordinary valuations and investment opportunities as industry models and rules are rewritten that turn traditional markets and industries on their heads.
“Blockchain operating models scale to tens of millions of users very quickly and by doing so de-risk the investment profile as each industry and the financial community values real customers, pricing this value into the risk profile of the business”…
While making investments in these new asset classes is devoid of broker fees, and the VC 20% carry where investors money is staked at the casino world of Venture Capital hoping 1 in 10 investments come good, why should this not be 5 or 8 from 10. The benefits of investing in these new assets classes are not always understood, as traditional capital markets players rubbish the new Crypto Capital Markets knowing their days are numbered as todays boom and bust models, where the debt can never be paid back is the final chapter.
A tokenised economy that delivers open transparent view of assets changing hands, of transactions and fees, showing decision making and a new system of accounting that balances the books using code (executable software as smart contracts) that automates the matching, settlement and ledger entries, and the payment of any dividends and the automated governance of investor rights and entitlements.
Deeper Crisis Emerging
The next Global Recession will bite very hard and offer little comfort to capital looking for a home, as Family Offices and funds decide when to move into Gold, what to hold and what to unload. It is worth remembering throughout history that all Fiat currencies eventually goes to zero, and now the USD has lost 95% of its intrinsic buying power, Private Wealth have few options but to look for new opportunities for a decent yield as the systemic risks remain in the system itself, rather than the investment in the underlying asset classes.
Diagram: The Kondratiev Seasons.
Each recession happens faster and lasts longer as the disintermediation of capital and the off balance sheet mess created by banks, makes it far harder to recover from what are becoming ‘super recessions’ on a scale not seen before. As the gap between the positive motivations of a currency to support the people who make industry successful by creating prosperity, is lost in the battle for short term gains, as time horizons shrinks from days to hours (by algorithmic & high frequency trading), it is left to private capital to make the next big moves and invest for the benefits of mankind, and positive changes.
The people have lost trust in governments, in the banking system as the inequality gap widens and distribution of wealth polarises into fewer hands, that brings even greater returns for further wealth accumulation as recession strips the assets from the people. But then private wealth has a conscience, recognising the needs to keep the people engaged, not pushed into bankruptcy, to be looked after and protected, and why so many Family Offices have set up new front of house teams that have crypto specialists on their roster.
“There are great opportunities in renewable energy, in a new healthcare system, an improved supply chain, in all industries are improved 10x using Blockchain technologies, where the decentralised operating model is natively more efficient, creates better outcomes, rewards all stakeholders and delivers trust. A new economic world that has massive financial implications for investors” Nick Ayton Founder & CEO Chainstarter Group
Its a generational thing…
The growing frustration of the next labour force is yet another a ‘ticking time bomb’. The Gen X and Z, along with large swaths of millennials who have seen their parents financial struggle from market corrections in 1991, 1998, 2008, where the mums and dads were mis-sold financial products, endowment mortgages, savings plans, insurances and overcharged for everything. A new generation of workers who do not want the burden of paying for a university education and require the nature of work to be repackaged to meet their digital needs and ambitions. They are vulnerable to a dark Socialist path that appears to deliver equality and fairness, yet has proven over decades to be an inadequate system that again serves fewer people and takes the printing of money to new hyper-inflationary levels that encourages uprisings, civil unrest and the odd war.
These new workers do not experience Capitalism in its current form working, as they enter their working lives with student debt, unable to get onto the housing ladder, so turn their back on this treadmill existence. They see through the ‘bull’ and experience the centralised hierarchal business models that dominate commerce today as a system that encourages politics rather than innovation and output. A bloated infrastructure to support a constipated management structure, generating higher costs and waste because of zero trust, zero agility and no transparency of the things that matter.
Blockchain Investment Pathways
The answer to the question: where to invest next, lies in the architecture of new business models. With current options limited what does good look like and where should investors turn. Put more into crypto hedge funds run by managers that dont really understand the technology or how value is created are mostly 80% down during 2018. Holding positions in worthless business models because they invested in things they didn’t understand!
Gold is obvious, property and land for the long term each contributing to dry illiquid markets where everyone holds. Rare things — art, jewels, cars maybe but are not plentiful or practical. But then again how about a Gold backed Token that is entirely fungible, and can create new debt and credit options is one of the projects our clients are going to launch in a matter of weeks. Imagine that a Gold backed hard currency could be seen as progress, returning stability and calm to the madness of soft fiat currencies and governments without any fiscal constraints.
We are working with such a hybrid Gold Crypto Currency which will return us ‘back to the future’!
The value in Blockchain is the business model…
It is worth remembering that decentralised business models are intrinsically more efficient, cheaper to operate and can scale at pace much quicker. And Bitcoin remains the best performing asset class despite the recent Bear run for most of 2018.
Blockchain is a legitimate technology along with their partners AI, Robotic Process Automation, Machine Learning that redefines the rules of commerce and collapses the bureaucratic waste of centralised systems that pass on unnecessary cost to the end customer. These business models are simpler, deliver a 10x multiplier in customer confidence and trust and 10x price/value to customers.
Many Family Offices we support now realise there are many great investment opportunities built upon Blockchain that redefine industry business models. Models like their predecessors Uber, Airbnb (platforms) that outperform the incumbents, unlocking demand for lower prices and better experience. Which makes them highly investable.
Can you apply a Blockchain business model onto a market or industry where the operating levers fundamentally change? Big Yes.
“Because the basis of applying this technology and its supporting token structure is to remove friction and create a transportation system that can move a store of value easier and much faster that exponentially simplifies the customer journey and improves the customer experience, at a lower cost. Deploying a Blockchain based business it is possible to remove at least 50% friction, time, cost, which translates into better margins and significant competitive advantage” Nick Ayton Blockchain Thought Leader & Evangelist
Blockchain Operting models designed right scale at pace to millions of users in a few years, reaching scale faster than the dot.com unicorns. The combination of transparency and an open market driven by a dual token economy allows a Blockchain business model to scale at pace because everyone can see and benefit from success. Faster to acquire users and participants each of whom are incentivised and therefore rewarded to become part of building the new for the benefit of everyone, owners and users.
These models scale to tens of millions of users very quickly and by doing so de-risk the investment profile as each industry and the financial community values real customers, pricing this into the value of the business. From $100 per active user to $3,000 per user in the pet for industry for example, and that is another story and opportunity we are working on, AI for dogs, driving huge footfall for pet products is predicated to reach 100m users inside 3 years.
Blockchain operating models created properly can be engineered with and investment exit in mind. Delivering liquidity for the token economy made available on exchanges to promote secondary trading options, where the investor interests are hard coded as automated governance. In 2018 we helped a number of Family Offices make the move into alternate asset classes, but as recession bites the investors that have bothered to understand and find out how our world of crypto works will not only protect their capital but also make significant gains in building our decentralised future.
The recession is coming, capital needs to be deployed and investors have new options should they choose to understand. In so many ways ignoring Blockchain and Crypto is a failure of obligations to protect and create family wealth.
“Ignorance is denied”
Author: Nick Ayton
© Nick Ayton 2018, 2019