Blockchain technology; cryptocurrencies, smart contracts and now NFTs - our world has entered a new digital age.
The rise of digital ownership is a huge shift in our technology and data driven world and that's not something that can be ignored.
I'm sure everyone has already heard of the different types of 'bubbles':
- Bitcoin is a bubble!
- Cryptocurrencies are a bubble!
- NFTs are a bubble!
It feels like some people still don't fully grasp the underlying potential and the possible use cases of this technology even after 12 YEARS.
I get it, change isn't easy - but is there maybe more to that? Is it maybe FUD to keep people away? If so, then you have to ask yourself WHY?
How would anyone profit from that?
The scope of changes this new digital era brings, has a lot of implications across many sectors if not all of them.
Imagine something comes along that has the potential to put your company (or even the whole sector) out of business - what would you do?
Do you try to evolve with the world around you?
Or do you try to keep people away from the 'next big thing' while sticking to doing the "same old thing" that you've been doing, hoping nobody moves on to the thing that has a lot more potential? I mean, your formula worked perfectly for so long, why would you need to change anything?
Right? Right!? *sweaty banker look*
Let me take you on a deep dive through some facts!
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
I'm sure most of you are familiar with this headline, this is the message that was present in the genesis block - the first bitcoin block ever created.
The 2008 crash was a terrible thing with global implications, all caused by the endless greed of financial institutions.
(If you want a 'fun' and easy way to learn a bit about the topic of the 2008 crash - watch 'the big short')
To quote Wikipedia:
"Lax financial regulation, excessive risk-taking by banks, and the bursting of the United States housing bubble culminated in a plummet in valuations of mortgage-backed securities which were tied to American real estate. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008 and a subsequent international banking crisis."
Now - you're probably wondering - what does that have to do with bitcoin? And the answer is EVERYTHING.
From the message in the genesis block up to the bitcoin whitepaper itself:
Bitcoin was an answer to the whole banking system and all the rigged rules it created!
"Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model."
"A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. "
It effectively cuts out the greedy middleman - banks and financial institutions. No wonder a broader adoption of this technology took a while.
Bitcoin - the new lad on the block shone some light on how we can make things better. You can imagine how the banks and financial institutions reacted when the threat to them has been growing and growing, no matter how hard they tried to stop it.
In case you forgot, here is a reminder:
"But it's digital! It doesn't exist!" - is when i usually told people to open their banking app. And yet, some still didn't understand.
Your banking data is also digital, but it's in the hands of a financial institution and not yours.
How long can this trust based banking model go on when you consider everything?
- lack of transparency and sometimes lack of security (i had banks give out my personal data to unauthorized people!)
- fees on fees on fees
- long transfer times
- under-reported inflation numbers
- insider trading
- the curse of greediness plaguing the whole financial sector
Currently we are at a point where bitcoin and cryptocurrencies aren't the 'new lad on the block' anymore, they won't go away and it's something that everyone needs to accept.
But, what about the banks? Aren't cryptocurrencies a bank-killer? How did the financial sector react? What about other sectors? - is what you're probably asking yourself right now.
Let's start with a big name in the financial sector before we move on to the bigger picture:
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." "Risk comes from not knowing what you're doing."
Remember those two quotes, they paint a wonderful picture together.
We can safely assume Mr. Buffett knows what he is doing. But - what is he doing exactly?
Publicly he never had anything good to say about bitcoin or cryptocurrencies in general.
And when financial 'big shots' say certain stuff, it leads to FUD - doesn't matter if it's crypto or the stock market - people panic.
And what do you do in times of fear, uncertainty and doubt?
"Be greedy when others are fearful"
We all experienced how the crypto market reacted to recent 'news' (FUD!), like the crypto ban in China.
But how did Mr. Buffet react?
"Berkshire Hathaway, the company led by CEO Warren Buffett, has invested $500 million in a pro-bitcoin digital bank. Nubank says it will offer bitcoin investment following its acquisition of brokerage firm Easynvest which offers the trading of Brazil’s first bitcoin exchange-traded fund (ETF)."
I want you to go back to those two quotes coming from Mr. Buffett. Now, how does that look to you?
It seems we can assume a few things:
- you need to know what you're doing to have an 'edge' against competition
- if you create fear in the markets - you create an opportunity for yourself
- then you can get greedy when everyone panics and prices dip (buying cheap crypto / shorting a stock making profits when it goes down)
This phenomena is something that isn't necessarily a 'Buffett-only' thing. Check out this headline:
Let me point you to a video from my favorite crypto Guy - Coin Bureau.
Now, here is where things are very complicated.
If you have been following what's happening in the stock markets - all the short selling and naked short selling on stocks like GME - where institutions profit on artificially making companies go under via plainly manipulating the markets and tricking retail investors - things start to click.
The whole game is rigged by financial institutions.
I suggest giving r/superstonk and r/GME a visit for more information on that topic - without the FUD spread by manipulated media.
(DYOR = DO YOUR OWN RESEARCH!)
A good place to start would be the DD (due diligence):
List of all DD about the shorted market
Look at those smug faces!
The greed in the financial sector is enormous - from the 2008 crash, current stock market manipulation via shortselling and fake 'news' - up to the recent FUD in our beloved crypto sector. It's all connected.
The financial sector dug it's own grave even deeper with shortselling, it seems like the only 'bubble' to go *pop* is the banking sector itself.
And now they've been moving into the crypto space.
All while spreading fear to load up on cheap coins and also to partially to save themselves from being margin called as it seems.
The financial rabbit hole is deeper than you might assume.
In my opinion, we will see retail investors like you, me or the average Joe, shifting into the crypto space as the trust for banks has been rapidly falling and soon there won't be any left.
To quote Coin Bureau - "I wouldn't touch that dirty FIAT money with a ten foot pole."
I think this is becoming the collective mindset of us all - for a reason (or multiple).
As we're still on the topic of banking and crypto - let's get back to digital ownership and how this could change the stock markets and prevent manipulation via naked shortselling.
"Naked short selling is unlawfully short selling shares that have neither been borrowed nor located. If sellers are engaged in naked short selling, then the volume of stock may be larger than the tradeable shares in the market, which can lead to sellers failing to deliver securities sold by the settlement."
"In financial markets T+2 is a shorthand for trade date plus two days indicating when securities transactions must be settled. The rules or customs in financial markets are for securities transactions to be settled within a commonly understood 'settlement period'."
I'm fairly sure that right about now you heard a *CLICK* sound when you connected the dots.
NFTs and the stock market?!
With NFTs we are experiencing a new era of verified, decentralized digital ownership. But what does that mean for the stock market?
If you watched any of the "U.S. House Committee on Financial Services" meetings, you probably noticed the word 'blockchain' gets thrown around fairly often - usually without any context or ideas.
Well, here is an idea - a stock NFT market.
Imagine a company directly selling stocks as NFTs. You know exactly where they come from and how many there are = no naked short selling possible.
There wouldn't be a T+2 settlement time - as soon as the transaction goes through - YOU would own the NFT shares directly, not your broker or bank - who might restrict you from buying/selling for no particular reason.
"Oh the share prices went down? We will restrict you from buying for 'your own safety' - but you can still sell those shares for a loss!"
Can you imagine this happening for cryptocurrencies? Yeah, me neither.
Sadly, this particular NFT use case exists currently only as an idea. For this to happen, the need to create a new NFT format for stocks and a new type of digital stock market arises. A niche, that will change our financial systems forever. Hopefully sooner than later.
Hope you enjoyed this part!
In the next parts i will talk about NFTs from an artist/buyer standpoint, doing a general deep dive into the creative spaces.
"Why musicians moved from labels to independent streaming and why we will see the next shift into the crypto space" is one of the upcoming topics.