Part 2 of a continuing series on younger investors in crypto
Click to read Part 1:
REAL CLEAR CRYPTO: To A Younger Investor, Crypto Is Deeper Than The Huge Returns
The greatest incentive for the investing public to dabble in cryptocurrencies is the potential for continued returns, according to 2019 Indiana University graduate Nathan Frankovitz, a blockchain analyst at Sarson Funds, a crypto asset management and education platform for financial advisors.
“People are motivated by incentives and there’s massive incentive in an asset class that is growing at a 200% compound annual growth rate, but I think that eventually you have to move past that financial incentive and figure out why there’s been so much financial gain to be made,” he said. “Things don’t just accrue value for no reason. I think it comes down to the creative destruction that crypto is bringing.”
The populist energy behind the rise of cryptocurrencies has come from Millennial and Generation Z investors, said Frankovitz, who are buying in with memories of the 2008 financial crisis but no experience with inflation.
As wealth transfers to a generation already skeptical of banks and the traditional financial industry, they’re going to look for new ways to invest and deploy capital.
“The creative destruction that decentralized finance and decentralized monetary systems are bringing addresses a real fear and a threat that most young technologists can relate to,” said Frankovitz.
As a result, crypto will likely help shape the views of younger generations of investors, he said.
“I think you become a very centrist-type thinker by being exposed to the different perspectives and the different skill sets that crypto community members have,” said Frankovitz. “I see a world where the vast majority of individuals and businesses operate on a decentralized monetary system. Imagine in the future, if we’re a multi-planetary species, and we’re still transacting with the U.S. dollar.”
This is a very Star Trek-type vision of the future—one where borders may exist as a formality but they do not obstruct the movement of capital.
Frankovitz says its one where the very nature of democracy is reshaped by blockchain technology towards one where representation is no longer necessary.
“I see a system where people collectively aid the development of society based on their immutable and collective input, which will be represented by digital tokens and assets,” he said. “Just look at the American political system, it has been at a standstill because the incentives are for change not to happen. It simply does not make sense. Blockchain is all about scaling processing power.”
Frankovitz said that cryptocurrencies are at an inflection point where they can not so easily be dismissed as a scam or a pipe dream.
“Advisors need to know this is not just a new startup—this is a paradigm shift not only in the way the monetary and financial system works, but in the way that society works,” said Frankovitz. “We’re in the early days to the transition. At some point it just becomes inevitable. If you’re not privy to these concepts and this technological revolution, then you will miss out.”
Every advisor needs to be familiar with the narrative driving cryptocurrency adoption, said Frankovitz, just as they should be able to identify to clients points in their lives where the monetary or political system failed to provide society needed integrity, and understand that cryptocurrencies are assets designed to remedy those shortfalls.
“To call it speculative, or too speculative to put it into a portfolio, demonstrates a gross misunderstanding of what a portfolio should be,” he said. “A portfolio is meant to hedge against being wrong. If you’re wrong and the cryptocurrency space does a 10x multiple in the next 10 years, you’d better have a good reason.”