Crypto Management Tools
Digital asset management can be overwhelming but it doesn’t have to be! We find it helpful to filter out all the noise in the space and focus on two asset classes that really matter for you and your business:
Also known as stablecoins. These are digital assets designed to minimize price volatility in the crypto economy. They achieve price stability through a variety of means, but what’s important to understand is that they de-risk your finances when conducting business in crypto. These assets can be a valuable addition to every business model as they take the benefits of government-issued fiat currencies like the USD, Yen and Euro and puts them in a cryptographic format that allows for value to be exchanged instantly, on a global scale. Some of the benefits of stablecoins include:
1. Lean business models
– Minimize fees and overhead expenses
2. Global market expansion
– The crypto economy is global and borderless in nature
3. Currency program-ability
– New and unique business models possible with ‘smart’ money
4. Digital Transformation
– Get a head-start in the digital marketplace
5. Velocity of Money
– Send and receive money on a global scale in seconds or minutes vs days or weeks
– Micro-business models
As more stablecoins begin to proliferate the market (notably Libra and the soon-to-launch China CBDC) we recommend that small business owners take note of new stablecoin developments and begin to integrate them into existing models. Current options for stablecoin integrations include: USDC, PAX, TUSD, GUSD & DAI
There currently exist thousands of cryptocurrencies and more are being created every single day. One might be inclined to ask how you could possibly navigate this complex digital marketplace? Well, we like to keep it simple as we believe only one cryptocurrency fits the bill as a growth asset and that’s bitcoin.
Bitcoin is the OG. The first digital currency ever created with the largest and most distributed network of users. It’s been battle-tested over the past 10 years and remains resilient, nay I say, defiant in the face of anyone trying to attack it. It’s the most secure and powerful network in the world.
Bitcoin may not be the fastest blockchain in the world, but it doesn’t have to be. It trudges along, publishing a new block, on average every 10 minutes. Every 10 minutes a new block of bitcoin financial transactions is published, timestamped and then put in into a chain, hence the name blockchain. And it’s been doing this uninterrupted for the past 10+ years with zero down-time and in a completely decentralized fashion. Just computers (ie people and companies) competing to be the first to publish a block. The first computer to win the race, were issued a predetermined amount of bitcoin.
Bitcoin’s Monetary Policy
A big part of the appeal on bitcoin as a new investment class was and still is the ‘scarce-like’ features of the asset. Features like scarcity, something typically reserved for assets like gold, could suddenly be programmed into currencies and other financial instruments in the digital landscape. Bitcoin was pre-programmed with a set monetary policy (new bitcoin issuance rate), outside the control of any one company or entity, and unleashed for anyone in the world to use. And we found that there was an entire community of people around the world who were needing a digital innovation like bitcoin.
As the years went by, the bitcoin blockchain continued to build itself block by block, verifying transactions. As its supporters grew, people began to take a closer look into it’s monetary policy. People began to realize that bitcoin shared the same ‘scarcity-like features of gold, but in a digital world. It had it’s own issuance rate. Much like a currency or gold would have a yearly inflation rate, or amount of new gold produced, bitcoin had a set system of how much new bitcoin could be issued or ‘mined’ every year.
Every 4 years, bitcoin is programmed to contract it’s monetary supply, or in other words, decrease the number of new bitcoin created on a yearly basis. The total Bitcoin supply is hard-capped at 21 million BTC, and based on the issuance rate being halved every 4 years, the 21 millionth bitcoin isn’t set to be mined until the year 2140. So, what does this make out to?
Well, when you tie digital scarcity with a programmed rate of inflation or issuance rate you get the makings of a financial asset class akin to a currency or gold.
Bitcoin Inflation Rate Over Time
|2009- 2012||Bitcoin issued at a rate of infinite on the upper bounds during its creation on Jan. 3rd, 2009 to 33.33% annualized inflation rate by 2012. By the end of this period, roughly 11 million bitcoin (2.75 million annually) had been ‘minted’ out of the total 21 million BTC total. Typically, a financial asset with a 33.3% annualized inflation rate wouldn’t make for a very good investment. It was largely ignored and rarely heard of. The asset had little value at this time.|
|2012-2016||Bitcoin experiences it’s first monetary supply contraction. The number of new BTC mined during this time is 5.5 million BTC (1.375 million BTC annually). The annualized inflation rate of the asset during this time frame drops from 33.33% to 9.5%. People began to take notice of this new budding asset class. It was still a fairly small market on a global scale, but individuals and businesses began to notice this growing asset. It’s value during this time was largely speculative but the currency was beginning to attract new life. A financial asset that inflates at 9.5% a year, would typically not be a very good investment.|
|2016- 2020||In 2016, we experienced bitcoins second and most recent, contraction of the money supply. The number of new BTC issued during this stretch of time dropped from 1.375 million BTC per year to 687,500 BTC per year for an annualized inflation rate between 9.5% and 3.7% and is where we know sit. Suddenly, bitcoin has a lot more media attention. People, businesses and large financial institutions are suddenly researching it and how to use the technology behind it. Investors began to realize bitcoin’s value proposition over time. Some countries, namely Argentina and Venezuela, begin to realize bitcoin’s value as a safe-haven asset. A 3.7% annualized inflation rate is a lot more appealing than the 1,000,000% inflation rate of the Venezuelan bolivar|
|2020- 2140||In 2020, bitcoin is set to experience it’s third monetary supply contraction where the the number of new bitcoin issued per year drops to 343,740 BTC for an annualized inflation rate between 3.7% and 1.69% in 2024. And then it contracts again, and the inflation rate drops between 1.69% to 0.79% over the next 4 years. And this is a cycle that continues to repeat until the last bitcoin is mined in the year 2140. As the|
Bitcoin Yearly Lows Since Creation
Big ideas can sometimes get ahead of themselves. Bitcoin is no exception. The end of 2017 experienced a bull-run like no other for bitcoin, catapaulting the cryptocurrency up to nearly $20,000 a coin. It climbed to new highs largely on the backs of speculation and serious retail FOMO. 2018 was a wakeup call for the asset class as the cryptocurrency came crashing back down to earth nearly touching $3000 before beginning it’s slow recovery.
What’s interesting about the price movements of a new financial asset like bitcoin is not what record highs it hits, but what it’s yearly lows are. With the exception of between 2014 and 2015, bitcoins yearly lows have been steadily increasing since 2009. Now what does this mean?
Bitcoin Yearly Lows
- 2010 = $0.06
- 2011 = $0.31
- 2012 = $4.69
- 2013 = $13.96
- 2014 = $302
- 2015 = $214.08
- 2016 = $394.69
- 2017 = $835.23
- 2018 = $3209
- 2019 = $3409
This means that although bitcoin consistently goes through boom and bust cycles, there has consistently been a net gain of new investment and users of the asset class. Demand is already outpacing supply and the real monetary contractions are only just beginning.
What will the future bring?
Though past success is no guarantee of future success, the fact that bitcoin remains the most secure network in the world and demand has been outpacing its supply since its creation, leads us to believe in its future potential as a growth asset. In a day and age where more and more of our lives revolve around the Internet, is it so far fetched to believe that we could create a digital store of value with qualities similar to that of gold? 10% of the market cap of gold puts the price of 1 BTC at $45,000, and we believe there’s a whole lot more upside potential than that.
A balanced approach
At the end of the day, conducting business in this new crypto ecosystem will be juggling act between short-term spending capital and long-term investment strategies. A crypto management strategy should consist of stablecoin assets and a growth asset like bitcoin that allows businesses to minimize the risk of short-term volatility while maximizing their future spending potential. Every business good stand to benefit from stablecoins and bitcoin.