That the longest bull run in history would come to an end sooner or later could have been anyone’s guess. It’s simply how economic cycles that build on productivity, credit and debt play out.
But who would have thought that instead of an asteroid, supervolcano, or alien invasion, something as small as a virus would stop the world economy in its tracks, and rob billions of people of their livelihoods in an instant? (Apart from Bill Gates, of course).
We’ve been here before, right? Not really.
We might be tempted to look to the dotcom crash in the early 2000s, the 2008 Financial Crisis, or even the Great Depression for guidance. But as with any crisis, this one was unexpected, unplanned, and is unique in terms of the solutions it requires - and in this case radically transformative in its aftermath.
If only this was a “simple” debt crisis!
Now, we need to ask the question; what’s next? And this is not so much about predictions, as it is about making decisions, and that’s the best position to be in.
The mass selloff that occurred on March 12 was essentially a scramble for cash. It makes sense: with supply chains disrupted, tourism ground to a halt, shops closed, social distancing measures in place and revenue suspended, companies have had to resort to survival tactics and rely on cash reserves to offset expenditures.
Any investor will you tell you, however, that over the long term, holding on to cash for dear life is not beneficial.
Low (or no) interest rates, bailouts, stimulus packages, money printers in overdrive - this is the stuff from which the Nakamotos of this world are born, and it’s not surprising at all to hear that Americans may have been converting their $1,200 checks to crypto.
Already a year ago, in an interview with Yahoo Finance, hedge fund manager Ray Dalio emphasized that everyone - and Millennials in particular - need to adopt a macroview and be much more conscious of how economic cycles of growth and decline evolve.
The three main recommendations he gives for navigating the coming years in the best way is firstly to ensure we build up savings, because it is in that buffer that we find freedom and safety. The second thing is to think critically about how to save well, so that apart from hoarding cash, we make sure to activate a portion for potential growth. Lastly, he pointed out how incredibly vital it is to diversify heavily across asset classes as well as national economies.
But at this particular juncture in history it’s also important to add that prior to any investment, critical thinking is needed to determine the type of society that is likely to emerge from the ashes of our current predicament and also what we want it to be like.
What technologies do we see the need for in a post-covid-19 world? Which companies can be expected to survive the crisis, or better yet, thrive? Which industries do we see perish, perhaps even for the good of the planet, and which ones do we want to support and grow with given our newfound understanding of the impact of our actions and investments?
In other words, now is the time to place new bets and redistribute capital to make the most of this opportunity to reshape the future.
Preparing for a tokenized economy
If quantitative easing and systemic exclusion of entire swathes of people from global prosperity are not enough of an incentive for the masses to adopt a digital-first, blockchain-based asset economy, then concerns over hygiene may do the trick.
We hear stories now of central banks resorting to physically placing cash in quarantine (or literally laundering money) to combat the spread of the novel coronavirus, but more sensible over the long term is the movement towards central bank digital currencies (CBDCs) as we can observe in China.
While CBDCs may not be crypto pur sang, their emergence is nonetheless indicative of the type of financial ecosystem that we are headed towards.
The new economy will be digital, accessible and through tokenization it will encompass crypto in a way that is integrated with traditional finance at large.
Investing in such a future, for most people, means acquiring Bitcoin. Slightly more advanced crypto enthusiasts may assess the merits of various protocols or focus on utility. But it’s also important to look at the businesses around the crypto markets.
One might invest in bullion-gold, for example, but one might also invest in gold mining ventures, or trade in picks and shovels for that matter. In other words, if the asset has a future, so does the industry.
Similarly, in crypto, irrespective of a bull or bear market, it seems that data aggregators, payment gateways and especially exchanges can continue to flourish.
The performance of major crypto exchanges during the first quarter of 2020 attests to this. At AAX, as well, we’ve experienced continued growth since right after Chinese New Year, just as the world was beginning to wake up to the crisis that was unfolding.
Likewise, in 2019, as the crypto space was thawing, some of the major exchange tokens, including Binance Coin and Huobi Token, were found to have outperformed Bitcoin in terms of gains.
This April, we launched our native exchange token AAB and while the numbers are not record-breaking, we managed to sell out $10 million USD worth of AAB in under three days (while under lockdown). We read this as a vote of confidence in AAX, but also in the exchange business and industry as a whole.
If anything, irrespective of the debate around whether or not Bitcoin is a safe haven asset, it is clear that the crypto industry has continued to function well and prosper, even under these most dire circumstances.
What does the future hold?
We find ourselves in a unique situation. Cash is still king, but we’re changing the constitution and transitioning to a democracy.
Investing now is not just about betting on what we think could be successful. It’s also a way of voting by channeling capital to those industries, sectors, businesses or technologies that we believe should be part of our future.
Who decides whether or not Bitcoin will take its rightful place in the new world? We do, and we vote with cash.
As with so many crises and periods of great turmoil, we now have an opportunity to restructure our societies and economies at the core, and that’s how we take it to the moon.
About the Author
Thor Chan is the Chief Executive Officer at AAX. He was previously licensed in Hong Kong to manage equities and derivatives brokerage and trading operations. He's held various roles, including Deputy COO at FDT Group, and product management roles at App Annie, Microsoft, Publicis, and HSBC.
AAX is the world’s first digital asset exchange to be powered by LSEG Technology. Offering OTC, spot, and futures, it provides a highly secure, deeply liquid and ultra-low latency trading environment; and a meeting point between crypto and global finance. To learn more, go to aax.com