6 Reasons You Should Ask Your Financial Advisor About Crypto

6 Reasons You Should Ask Your Financial Advisor About Crypto

1. Crypto is the fastest growing asset class of the past decade

Crypto’s lexicon can be confusing to even seasoned investors, but the numbers are indisputable. More specifically, crypto is the best performing asset class of the last decade. Many successful investors have already broadly embraced crypto, and even long-time skeptics like Paul Tudor Jones, Mike Novogratz, and Kevin O’Leary are now embracing the asset class. 

A July 2021 Fidelity white paper cited growing institutional interest for the expanding set of channels offering crypto exposure. A recent Goldman Sachs report noted that while most family offices are not yet invested in cryptocurrencies, almost half are now considering ways to initiate exposure in the future. Banking giants Morgan Stanley, Goldman Sachs, and JP Morgan are now racing to compete with successful fintechs offering crypto like Robinhood, PayPal, Square, and Coinbase.

2. Millennials and Gen Z Have Already Embraced Crypto – And Boomers Will Need to Start Paying Attention

A Fall 2020 survey by Gemini revealed 42% of respondents holding crypto were between the ages of 18-34, while an additional 35% were ages 35-44. Goldman Sachs research suggests Millennials are one of the largest generations in history, and as such “are poised to reshape the economy; their unique experiences will change the ways we buy and sell, forcing companies to examine how they do business for decades to come.”

According to the latest CNBC Millionaire Survey almost 50% of millennial millionaires allocate 25% or more of their wealth to crypto. Meanwhile Gen Z is already calling Bitcoin “Boomercoin”, instead opting for even more contemporary digital assets. 

3. Crypto Is Disruptive

“Cryptocurrency” has become a misnomer as the market has diversified. Indeed most emerging crypto assets today seek to first offer utility rather than serving as a de facto currency. 

Decentralized Finance (DeFi) protocols on networks like Ethereum are disrupting private lending, borrowing, and market making services. Consumers can access these decentralized, unbiased services 24/7 without worrying about KYC (Know Your Customer). As DeFi matures, a diversity of use cases are being built, including asset fractionalization and parametric insurance. These innovations could profoundly change the real estate and insurance industries by lowering barriers to entry and removing opaque, unreliable intermediaries.

4. Crypto is Community and Culture

Blockchain technology is opening new pathways for artists and consumers to create, communicate, and transact. Audius’s decentralized music-streaming network is giving artists unrestricted creative license without need for costly and controlling middlemen, while Livepeer targets similar disruptive creation in the video streaming industry. Celebrities and sports teams are even tokenizing themselves to deepen fan engagement through issuing token-holder incentives like voting and rewards.

Burgeoning metaverses, play-to-earn games, and NFT (non-fungible token) collectibles/art markets are also fueling the fire of crypto adoption. NFTs offer users ownership of provably scarce digital assets, something previously impossible in earlier iterations of online communities. These new digital economies are processing $100 million + weekly trade volumes for assets such as metaverse real estate, in-game characters and items, and generative art.

5. Crypto is ESG

ESG investing saw exponential growth in the last decade, with relevant investments representing ~25% of all new capital invested in 2020, versus ~1% in 2014. Morningstar research suggests net new capital allocated to ESG offerings increased from ~$5 billion in 2015 to $51.1 billion by the end of 2020.

Crypto and ESG are already converging . Despite criticism for its high energy usage, Bitcoin’s appetite for low-cost electricity makes renewable energy opportunities profitable through energy arbitrage, and forward-thinking miners are collaborating to further address ESG concerns through initiatives like the Bitcoin Mining Council. Beyond Bitcoin, myriad token projects are gaining popularity as they seek to fulfill environmental, social, and governance-related issues through their efficient network economies and governance structures like DAOs.

6. Crypto could just be getting started

Despite its already immense appreciation, crypto’s potential remains largely untapped. Bitcoin alone could have over a ten-fold increase from its current ~$885 billion market cap before it fulfills its predominant narrative to surpass gold as a store of value. Beyond Bitcoin, DeFi applications built on protocols like Ethereum have hardly scratched the surface of the global derivatives markets, which some estimates place notional value between $558.5 trillion – $1.0 quadrillion (total crypto assets are currently valued at ~$2.15 trillion). 

Gemini’s same Fall 2020 survey estimated 14% crypto asset investment market penetration among U.S. adults. As Icon Ventures’ Michael Mullany points out, technological adoption begins to accelerate as early adopters give way to the early majority at ~15% market penetration. KPMG’s “Consumer Adoption: How to predict the tipping point” substantiates this idea, illustrated by the S-curve adoption model. However, discrepancies between U.S. and foreign adoption and inconsistent regulatory landscapes indeed make predicting an adoption “tipping point” difficult to estimate with precision.

As IBM suggests, crypto’s ability to broaden financial inclusivity by “banking the unbanked” is compelling. With billions of people worldwide yet to have access to meaningful internet connectivity, the maturing crypto asset industry could grow significantly by onboarding internet newcomers in the coming decade. El Salvador, the world’s first country to adopt Bitcoin as legal tender, already estimates it will save $400 million (~1.62% of their 2020 GDP) in remittance fees per year according to CNBC

As investor Naved Abdali once said, “It may take some time, but capital will eventually flow to the most logical place.”

 

A Special Announcement From Sarson Funds

On September 2nd, Sarson Funds announced the launch of its cryptocurrency financial advisor certification program, with the aim of making advisors “crypto heroes” to millions of American investor clients who have otherwise been dormant from the accelerated growth of digital assets. The eight-part webinar series will consist of live bi-weekly webinars hosted on the Digital Wealth News education portal, beginning on September 14th, 2021, and running to December 19th, 2021.

Key Takeaways:

  • Sarson Funds announced the launch of its cryptocurrency financial advisor certification program, hosted in partnership with the Investments and Wealth Institute and Digital Wealth News.
  • The eight-part webinar series will be comprised of live bi-weekly webinars hosted on the Digital Wealth News portal, from September 14th, 2021 to December 19th, 2021.
  • Advisors who complete the series will earn CE credits, plus certification as a crypto advisor from Sarson Funds, awarded as a non-fungible token (NFT) – an industry first.

To view the full announcement, including downloadable images, bios, and more, click here.

By Nathan Frankovitz & Bryan Prohm

 

Crypto at a Crossroads: Is the Era of Ethereum Dawning?

Crypto at a Crossroads: Is the Era of Ethereum Dawning?

 

The “London” Hard Fork is now live on Ethereum’s network as of Block 12,965,000, minted around 8:34 AM EDT, August 5th, 2021. Importantly to investors, the upgrade implements changes to the platform that may have a profound impact on the future of our current crypto economy. 

While the London upgrade implements five Ethereum Improvement Proposals (EIPs), EIP-1559 stands out. By introducing token burns, EIP-1559 changes Ether’s tokenomics by reducing long-term supply projections. Previously, 100% of transaction fees on Ethereum were allocated to miners as reward for processing and recording network transactions. With EIP-1559 implemented, however, there is now a base fee applied to network transactions. This base fee is burned, destroying the Ether and reducing its total supply.

Basic economics dictates that a reduction in supply or an increase in demand increases the price of an asset, given all else is held constant. Thus, tokenomics, which describes the supply and demand characteristics of a crypto token, is a core consideration for investors. Bitcoin’s tokenomics famously utilize a hard cap, meaning that the maximum supply of Bitcoin created could only ever reach 21 million. Digitally-verified scarcity like Bitcoin’s was never possible until the advent of blockchain technology; today, it is a driving narrative for decentralized stores of value.

The implementation of Ethereum’s EIP-1559 marks an important milestone for its position along the spectrum between inflationary and deflationary assets. Even though Ethereum still does not have a hard cap like Bitcoin, both of the assets are technically disinflationary in their current form—this is commonly misunderstood, as Bitcoin is often touted as being deflationary. In reality, Bitcoin is disinflationary. Disinflation occurs when the rate of inflation is decelerating. Current estimates put Bitcoin’s inflation rate between 1.5% – 2.0%; this will likely continue to decline as halvings continue to reduce the issuance rate of Bitcoin relative to its price. 

Source: woobull.com

Unlike Bitcoin, however, Ether’s supply may actually begin to decrease if token burns resulting from EIP-1559 begin outweighing new Ether issuance from miners. So long as Ether’s price holds steady or appreciates against a dwindling supply, Ether becomes truly deflationary. Ethereum 2.0 implementation could make such a deflationary scenario even more pronounced as Ether mining becomes obsolete and Ether issuance continues to decline. Moreover, Ethereum 2.0 scaling and continued network expansion will likely increase the rate of Ether-burning transactions. While some of Ethereum’s community continue to debate introducing a supply cap to Ether, both the current and upcoming deflationary mechanisms suggest that a cap may be unnecessary to perform as a store of value.

Ethereum number of active addresses
Source: glassnode.com

Ultrasound.money is a new website tracking Ether’s supply in the wake of EIP-1559. The site’s Q&A states, “Ultra sound money is an Ethereum meme focusing on the likely decrease of the ETH supply. If capped-supply gold is sound, decreasing-supply ether is ultra sound.” Clearly, this new narrative for Ethereum encroaches on Bitcoin’s “Gold 2.0” status as the ultimate digital store of value. The site also references Nikhil Shamapant’s (known on twitter as @SquishChaos) 77 page report on Ethereum entitled, “Ethereum, The Triple Halving”. In the report, Shamapant draws a parallel between Ethereum 2.0’s upcoming supply issuance reduction with previous Bitcoin halvings. More specifically, he equates a 90% reduction in issuance with 3 Bitcoin halvings. The implications this could pose for Ether’s price are hard to ignore.

Raoul Pal, CEO/publisher of The Global Macro Investor and CEO/co-founder of Real Vision Group recently spoke with YouTube channel Altcoin Daily on his recently written article, “The Greatest Trade in the World”, substantiating his decision to sell significant amounts of his Bitcoin for Ether. Acknowledging Ethereum 2.0’s inevitable staking unlock, Raoul states, “I think the unlock will probably lower the price. But between now and that unlock? Oh my god, this is one of the best setups I’ve ever seen. I think arguably better than Bitcoin in March 2020.”

Without doubt, Ethereum’s fundamental developments against the already blistering backdrop of the broader crypto space can make such speculations difficult to process. At Sarson Funds, we believe that thorough and unbiased analysis, disciplined portfolio management, and appropriate risk tolerance are necessary to maximize the value we create through digital asset investing. In pursuit of these goals, we welcome engagement from our readers. What do you think about Ethereum, EIP-1559, Ethereum 2.0, and the broader markets? Follow us on Twitter, LinkedIn, and check out our newsroom

Complement or Competitor? Stablecoins and CBDCs in the Digital Asset Universe

Stablecoins and CBDCs

Stablecoins and CBDCs

Despite a prolonged crypto market cooldown since April’s all-time highs, the crypto market remains in the spotlight. The widespread potential of blockchain technology’s immutable public ledger has become increasingly apparent through blossoming crypto sectors like DeFi, NFTs, and metaverses. Accordingly, conversations appear to be moving away from if blockchain will have a role to play in society—rather, it seems the question has become how, in light of ongoing regulatory uncertainty. Specifically, disclarity surrounding stablecoins, another booming crypto sector, lies at the heart of this question.

Stablecoins are essential to the robust crypto economies we have today. Designed to maintain a 1:1 “peg” to the value of fiat currencies, stablecoins allow users to trade between utility tokens like Ethereum into familiar units of account such as the U.S. dollar. These fiat tokens enable users to exit positions correlated with the notoriously volatile crypto market without exiting on-chain economies. Without stablecoins, crypto users would depend on fiat on-ramps like Coinbase, which are expensive and time consuming bottlenecks when considering the costs and constraints of bank transfers. Moreover, stablecoins are compatible with smart contracts, meaning they can be used to compose automatically executing agreements such as derivative contracts, loans, and parametric insurance policies. Stablecoins are also becoming increasingly popular for making remittance payments.

Stablecoins are minted in a variety of ways. Tether (USDT) and USD Coin (USDC), the two largest stablecoins by market cap, are issued by Tether Limited and Circle, respectively. Both of these centralized institutions (allegedly) backs each of these tokens 1:1 with reserve assets, making the blockchain-based USDT & USDC tokens fully redeemable for the fiat currencies they represent. More novelly, Dai (DAI) is a stablecoin pegged to the U.S. dollar issued by Maker’s decentralized autonomous organization, MakerDAO. Dai’s 1:1 price peg is achieved via over-collateralization, meaning that for every Dai issued MakerDAO’s Maker Vault locks more than $1 worth of crypto asset collateral. Though Dai’s Ethereum-based issuance is inherently less prone to corruption, it is less capital efficient than USDT & USDC. 

Experimentally, algorithmic stablecoins seek to achieve both greater transparency and capital efficiency than centralized 1:1 collateralized stablecoins and decentralized overcollateralized stablecoins by maintaining price peg via algorithms and game theory. Often regarded as the “Holy Grail” of stablecoins, a successful design remains elusive as infamous attempts such as Iron Finance have burned speculative investors like Mark Cuban as they experimented in the space. For now, algorithmic stablecoins are an alluring but unproven concept.

As of July 18th 2021, the combined market capitalization of the top 7 stablecoins is $110,132,502,543 according to CoinGecko. The supply of outstanding stablecoins has surged since the “DeFi Summer” of 2020, a period of explosive growth in the emerging decentralized finance ecosystem reflected in the CoinGecko chart below:

Historically, governments have mostly ignored the crypto industry due to its size and complexity. However, that is changing. As investors continue to learn about Bitcoin and increase aggregate demand for a decentralized monetary system, central banks are facing a reality wherein their ability to implement capital controls and track money in circulation is dwindling. How, then, can central banks respond? The answer may lie in central bank digital currencies, or CBDCs. Jerome Powell, Chair of the U.S. Federal Reserve, has already announced an upcoming Fed report on CBDCs that will outline benefits and risks. The report is expected to be completed by early September.

CBDCs are simple in concept. As opposed to a private entity like Tether or Circle issuing tokenized representations of fiat money, a CBDC is issued directly by a government’s monetary authority—in the US, this would hypothetically be The Federal Reserve. CBDCs may pose less risk to users by virtue of being issued by the governing authority, rather than a private centralized entity which is vulnerable to corruption, fraud, or undercollateralization.

From a government’s perspective, CBDCs present several opportunities. For one, the blockchain makes tracking capital movement easily traceable. This could enable governments to identify and intercept illicit activities through financial oversight, albeit potentially at the expense of individuals’ privacy. In many jurisdictions, fiat on-ramps like Coinbase have KYC and AML requirements, short for “Know Your Customer” and “Anti-Money Laundering”. These institutions could be compelled by governing authorities to provide customer identities tied to specific blockchain wallet addresses. Once an individual is identified as the owner of a wallet address, investigators can easily trace their capital movements through blockchain explorers like Etherscan. Though many early crypto adopters lauded blockchain for granting pseudo-anonymity to its users, the immutable public ledger may ironically become the best government surveillance tool ever created. 

Another opportunity presented by CBDCs is the disintermediation of commercial banking activities. According to an April 2021 report by Citi, PwC’s Global Crypto Leader Henri Arslanian stated, “A good use-case is cross-border payments. Today, the average fee for cross-border payments is around 7%. We have nearly 250 million people across the world sending over $500 billion in cross-border remittances annually, and the fees are extremely high. It is embarrassing that we have not solved this issue so far.” Echoing Arslanian, Sarson Funds has frequently researched and invested in crypto projects utilizing blockchain to disrupt financial intermediaries

Chairman Powell appears to have strong beliefs about the prospects for CBDCs. In response to Rep. Stephen Lynch’s question if a “swift action” on the Fed’s digital currency could “calm” the markets and make the blockchain economy’s thousands of crypto assets obsolete, Powell stated, “I think that may be the case. I think that’s one of the arguments that are offered in favor of digital currency…” Continuing, Powell said “…In particular, you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency. I think that’s one of the stronger arguments in its favor.” While it reasons that fiat tokens issued and backed by central banks may obsolesce existing stablecoins, concluding that all crypto assets could be replaced by CBDCs reveals fundamental ignorance of the value offered by other crypto asset sectors.

Even as governments catch on to the virtues of CBDCs over existing forms of fiat, many will be reluctant to accept the decentralized store of value belief system that has historically fueled the crypto asset ecosystem’s growth. After all, money printers are crucial tools for governments to impose policy—especially in the US, whose dollar is the global reserve currency and can easily be weaponized. However, rejecting the core crypto ethos for decentralizing the monetary supply may work against skeptical governments in the end. As authoritarian China simultaneously advances their native CBDC while banning bitcoin mining operations, western, pro-innovation jurisdictions may be wise to embrace the decentralized wave.

Congressman Tom Emmer made a compelling argument in favor of embracing decentralization via CBDCs on Tuesday during a hearing titled, “The Promises and Perils of Central Bank Digital Currencies“, hosted by National Security, International Development, and Monetary Policy Subcommittee Chairman Himes and Ranking Member Barr. Rep. Emmer warned against mirroring China’s CBDC design, stating, “…We must not forget that the benefit of having a digital dollar would only come to fruition if it were open, permissionless, and private. Any attempt to craft a central bank digital currency that enables the Fed to provide retail bank accounts and mobilizes the CBDC rails into a surveillance tool able to collect all sorts of information on Americans would do nothing other than put the United States on par with China’s digital authoritarianism.” Later in his remarks, Emmer challenged Powell’s stance that CBDCs could replace other crypto assets. “It’s my belief that decentralized technology like cryptocurrencies and the blockchain technology that they sit on maintain a fundamental American principle: that is individual privacy, a free marketplace, and competition with innovation. Why should the Fed focus on uplifting private crypto markets and blockchain innovation rather than crafting a CBDC that wipes out this great industry or has the potential according to Chair Powell to wipe out the industry?” 

If the U.S. regulatory environment remains friendly to decentralized assets and blockchain innovators, then the issuance of a digital dollar CBDC would likely accelerate crypto economy adoption. Formally integrating fiat into the cryptoverse would allow more users to save through decentralized assets like Bitcoin while having easy access to familiar units of account such as dollars. We look forward to The Federal Reserve System’s upcoming CBDC report, and remain optimistic about the long-term outlook for digital assets being recognized fundamentally as forces for freedom. As Sarson Funds’ CMO & Cofounder Jahon Jamali put it, “Bitcoin is as American as apple pie. There’s nothing that’s more American than financial freedom, and we have an opportunity here to take the lead if we really want to grab it.”

“Green” Bitcoins: Environmentally Progressive, or an Empty Promise?

"Green" Bitcoins: Environmentally Progressive, or an Empty Promise?"Green" Bitcoins: Environmentally Progressive, or an Empty Promise?

Amid sustained bearish price action in the crypto markets, concerns surrounding Bitcoin’s energy usage remain pervasive. Prominent politicians, CEOs, and even comedians are taking both sides of the debate—often opting for controversy in lieu of objectivity. Notably, talks of assigning sustainability grades to individual bitcoins are gaining traction, threatening Bitcoin’s fungibility in an effort to address investors’ environmental concerns. However, the market’s appetite for graded bitcoins remains to be proven. Will demand for graded bitcoins sculpt the future of the network’s relationship with the environment, or will preexisting forces help Bitcoin stand the test of time? At Sarson Funds, our mission is to dive deep into issues like these to deliver fact-based, world-class investor education and portfolio management.

Last week, El Salvador made history as the first country to adopt Bitcoin as legal tender. The move is widely claimed by supporters to be aimed at improving financial inclusion for the ~70% of unbanked Salvadorians. Yet, days later, political figures like Donald Trump and Elizabeth Warren both denounced Bitcoin for fear of its competition with U.S. monetary policy and its impact on the climate. Adding to the confusion, prominent technologist and environmentalist Elon Musk recently made conflicting remarks both for and against Bitcoin’s case as a technology that hastens renewable energy development. Even Kevin O’Leary, who rejected Bitcoin for years as a “giant nothing-burger”, has reversed his stance and now loudly supports Bitcoin as an asset that will outperform the S&P 500 in the coming decade. 

O’Leary posits that greener practices will drive up institutional demand for Bitcoin. According to him, “Most of these institutions have both ethics and sustainability committees that filter offerings before they’re allocated on the investment committee. They’re not just singling out crypto.” A popular, generalized category of investment screening methods for these committees is called “ESG”, which stands for environmental, social, and governance. As ESG mandates gain adoption, entities seeking investment face growing incentives to fulfill ESG mandates.

To help ESG-focused institutions justify investing in Bitcoin, O’Leary is pushing to “wrap” bitcoins based on the alleged sustainability of their origin. Essentially, “wrapping” bitcoins on the blockchain would involve tagging them with varying grades depending on the energy mix of the mine they originated from. With the ability to verify the environmental sustainability of a given bitcoin’s origin, investors could theoretically invest in the leading crypto asset without contributing toward demand for environmentally destructive energy sources.

On the other hand, demand for wrapped “green” bitcoins is yet to be proven. To understand why, Anthony Pompliano interviewed CEO Fred Thiel of Marathon Digital Holdings, one of the largest Bitcoin miners in North America. Marathon responded to growing ESG demand by developing “virgin” OFAC compliant bitcoins mined with purely sustainable energy. However,  these bitcoins failed to garner investors. Thiel described the experience, stating, “What we quickly learned, however, was that the financial institutions weren’t willing to pay extra for that bitcoin. So it’s kind of like saying ‘all bitcoin really are the same, but we’d like to be able to say (this is the financial institutions) that the bitcoin we buy are sustainably mined and are fully OFAC compliant’. But if they [institutions] are not willing to pay for that, then there’s no reason to do it.” 

So, it seems that institutions are playing both sides. On one hand, they are buying Bitcoin at unprecedented rates. On the other, they want to continue attracting investors by fulfilling ESG mandates. As Thiel describes, “I think part of it is very much virtue signaling by the institutions because there are activist investors holding them to that mandate.” Thus, “green” bitcoins appear to be more of an advertisement than a technology.

Contrary to the narrative most media outlets are selling, we believe that Bitcoin and ESG will not only continue to coexist, but will actually continue to propel one another as complementary forces. Thiel continues, “Miners really have an incentive of becoming more environmentally sustainable. It’s the right thing to do, not just for the planet but for the industry.” In other words, the economic incentives underlying the Bitcoin network are aligned with sustainability as miners compete for increasingly low-cost energy.  Demonstrating this concept, Marathon has committed to carbon neutrality for their next deployment of 70,000 miners in accordance with their carbon neutrality objectives. 

Few understand how Bitcoin, its surrounding ecosystem of crypto assets like Ethereum, and the electrical grid interplay to impact the long-term outlook on the environment. Previously, we have cited research showing how demand for Bitcoin accelerates clean energy network expansion through an economic mechanism known as “energy arbitrage”. In his interview with Pomp, Thiel cites another example of this concept in practice:

The biggest problem in power today is not that there isn’t enough of it that’s green, it’s it can’t get to the right places. And that’s a grid and distribution issue. 200 gigawatts of power is lost a year in this country just by heat in distribution lines. And you could mine a lot of Bitcoin if you just put that base load on a facility where they’re doing solar or wind. And until battery storage technology gets there, I think you’re going to find Bitcoin miners are the key drivers of investment in renewable energy.” 

Published in September 2020, The 3rd Global Cryptoasset Benchmarking Study from the University of Cambridge cites that “on average 39% of proof-of-work mining is powered by renewable energy, primarily hydroelectric energy.” In comparison, renewable energy’s share of global electricity generation was only 25% in 2019. More recently, CEO Jiang Zhuoer of a leading Bitcoin mining pool called BTC.top claimed that miner clean energy usage now exceeds 50% in the aftermath of mining facilities in Xinjiang, Inner Mongolia, and Qinghai provinces being shut down.

Miners’ eagerness to bring transparency to their operations is a good sign. Recently convened by Microstrategy’s Michael Saylor, the Bitcoin Mining Council seeks to “…promote transparency, share best practices, and educate the public on the benefits of Bitcoin and Bitcoin mining.” Pursuant to these goals, the council will provide a voluntary disclosure forum for miners to share energy sources. Looking forward, Sarson Funds will closely monitor the council’s quarterly meetups to track trends in Bitcoin mining.

So long as individuals, institutions, and governments continue to embrace decentralization, we expect the increasingly informed public to view Bitcoin and other crypto assets as environmentally progressive technologies. In contrast to the perils of the petrodollar, we are optimistic about the future of states leveraging their climate’s unique mix of renewable energy sources like Iceland and El Salvador have. If DeFi applications continue to mature and take market share from legacy financial institutions, electrical demand for banks should diminish. If this idyllic vision is fully realized, the future of finance will be powered by a decentralized, transparent, and unbiased monetary system secured by sustainable resources worldwide. 

"Green" Bitcoins: Environmentally Progressive, or an Empty Promise?By Nathan Frankovitz

Polygon: Ethereum’s Scaling Sidekick

Ethereum is the leading Blockchain for decentralized applications (dApps) globally. With net value locked in Ethereum surpassing $50 billion in mid April this year, the network’s growing list of decentralized finance (DeFi) protocols are beginning to rival formidable financial institutions. However, growing adoption is causing network congestion, making Ethereum too slow and cost prohibitive for certain applications and user bases. With Ethereum 2.0’s uncertain implementation timeline, many projects are vying for the title of “Ethereum killer”, if not the more humble “Ethereum scaling solution”. Among these solutions, Polygon is perhaps the most promising.

Polygon, previously Matic Network, takes a unique approach to scaling Ethereum by leveraging instead of fighting against the diverse ecosystem of existing scaling solutions. By providing “…a framework for building and connecting Ethereum-compatible blockchain networks”, Polygon creates value through fostering Ethereum network effect expansion. Accordingly, its valuations have skyrocketed in 2021.

The growing list of projects using Polygon architecture shows how embedded the network has already become in the DeFi ecosystem. Liquidity providers like Aave, exchanges like Curve, and prediction markets like Augur are examples of DeFi protocols whose combined efforts are automating and threatening to replace large segments of the legacy financial system. So long as Polygon continues to add value by aggregating Ethereum’s diverse set of scaling solutions, it will likely continue its rapid growth.

Because the subject is so technical, there is uncertainty among investors with regards to Polygon’s long term prospects. Since Ethereum 2.0’s shard chains will upgrade Ethereum’s scalability, it is natural to wonder whether solutions like Polygon will still be needed. However, we believe that Polygon’s value proposition is complementary to Ethereum 2.0. Vitalik Buterin, who is the founder of Ethereum, shares his perspective on the long term concerns for Ethereum in an October 2020 post:

It seems very plausible to me that when phase 2 finally comes, essentially no one will care about it. Everyone will have already adapted to a rollup-centric [a type of scaling solution] world whether we like it or not, and by that point it will be easier to continue down that path than to try to bring everyone back to the base chain for no clear benefit and a 20-100x reduction in scalability.

In other words, the current ecosystem of Ethereum scaling solutions may be so robust that by the time Ethereum 2.0 is fully implemented it would be counterproductive, or economically irrational, for network participants to bring all activity back to the base chain. Vitalik furthers his point, writing, “This implies a ‘phase 1.5 and done’ approach to eth2, where the base layer retrenches and focuses on doing a few things well – namely, consensus and data availability.”

We look forward to monitoring the ongoing development of the Ethereum ecosystem. As DeFi protocols continue to scale in breadth of applications and depth of user adoption, it is likely that many more blockchain scaling and bridging projects will be integrated. By offering an adaptive framework for combining these projects’ strengths, we are confident Polygon will continue to add value to the crypto asset space for the foreseeable future.

By Nathan Frankovitz

Helium Network: Powering the People’s Wireless Economy

Helium Network Token The Peoples' Wireless Economy Mining

The Helium Network Token Wireless Economy Hotspot Miner

Without a doubt, the internet has made the world a better place. By distributing near-instant access to information across the globe, virtually all industries have become more efficient. Moreover, the standard of living around the world has climbed rapidly as humans have gained access to internet-based devices with an ever growing set of applications. Now, the Internet of Things (IOT) is enabling devices themselves to communicate with one another in unprecedented ways, making it possible for new synergies to be discovered. Through decentralization, crypto assets are helping to scale these in-demand networks. By offering public access to wide ranging coverage at low energy costs, Helium Network Token (HNT) has become the leading crypto network for the rapidly growing IoT space.

Air quality monitors, GPS asset trackers, and temperature sensors are just a few examples of devices that can make use of the Helium Network to collect and relay information. As the number of such devices grows, the network will afford users unparalleled access to robust real-time, real-world data. The value potential of this next chapter in the age of information is incalculable. Accordingly, demand for IoT connected devices is projected to rise exponentially in the coming years.

Traditionally, costly infrastructural barriers to entry limit competition and network scalability, enabling private internet service providers to siphon wealth that is created by the public’s growing interconnectivity. However, because Helium’s network grows organically through its decentralized community of investors, it is capable of providing unlimited data usage with no need for the sim cards and fees associated with traditional private networks like AT&T or Verizon. Helium’s disruptive token economy is simultaneously a threat to private networks and an opportunity to forward-thinking investors. 

By rewarding Hotspot providers with Helium Network Token (HNT), the Helium Network incentivizes individuals to invest in “Proof-of-Coverage” miners that provide miles of coverage for surrounding IoT devices. Using radio frequencies, Helium LongFi transfers data and credits using only 5W of energy per Hotspot, which is less than most light bulbs. Though tech enthusiasts are capable of building their own miners, commercial third-party manufacturers sell Helium Community approved HNT miners starting at approximately $426 USD. Depending on demand and location, many of these miners earn upwards of 100 HNT per month. As HNT is valued at $16.61 per token on the day of writing, these sold out miners frequently resell for multiples of their retail price on secondary markets.

Above: Helium Hotspot in Manhattan and surrounding network participants. Source: explorer.helium.com

Because the Helium Network is able to pool data from a virtually unlimited number of devices, it is especially useful for scientific endeavors that require extensive monitoring such as agriculture, weather forecasting, and environmental biology. Of note, a joint study titled “Advances in Smart Environment Monitoring Systems Using IoT and Sensors” between the Italian University of Sannio and the Myanmar Institute of Information Technology (MIIT) cites air, water, and radioactive pollution as “major factors that pose genuine challenges in the environment”. With better data, researchers can make better decisions to overcome these challenges. The study also reviews research trends wherein emerging IoT technology can be used to enrich other environmental factors.

Helium also finds adoption in asset tracking. As PR Newswire explains, “Preventing asset loss and theft, followed by enhancing operational efficiency are the two highest drivers of [IoT] adoption.” According to Helium’s Head of IoT Product Dal Gemmell, “Based on inbound demand and outbound efforts, asset tracking demand remains high, and yet legacy connectivity technologies continue to be costly and complex.”

Similarly, IoT networks like Helium can monitor movement of vulnerable people such as patients with dementia, who are increasingly treated in outpatient settings, making the monitoring of these people vital to ensure their safety and well being. Using the Helium network, Careband monitors movement and wearable device data of cognitively disabled patients to alert caretakers of irregularities in the patients daily routine. The same technology is being incorporated in proximity and contact tracing in COVID-19 outbreaks. Regarding integrating Helium, Careband’s CEO Adam Sobol stated, “So much of what we are doing today is possible because of them [Helium] and The People’s Network. Together, we are giving employers, administrators, and caregivers the much-needed tools they need to help protect their teams, students, and loved ones.”

Helium’s integration with Airly is another example of how decentralized IoT networks can further public health objectives. According to the UN, worldwide air pollution causes some 7 million deaths and $5 trillion in costs annually. Airly Sensors, air quality maps, and API tools help both individuals and institutional researchers stay informed with hyper-local real time air quality data. With obvious congruence between Airly’s emphasis on sustainability and recent heightened public discourse on crypto’s environmental and social impacts, we anticipate future integrations between crypto networks to produce even more efficient, net-positive changes for the globe.

In essence, the Internet of Things empowers humanity by delivering rich, timely, and actionable data. If air sensors and asset trackers are like nerve endings on the human body, then the Helium network is much like the nerves running to the brain. Combined, these tools enable us to make informed decisions on how to respond to the unpredictable world we live in. As we increasingly sense, respond to, and learn from such powerfully precise data, we will be capable of building a more beautiful future for all. 

By Nathan Frankovitz & Zachary Profeta

When In Doubt, Zoom Out: Crypto & the “Lengthening Cycle Theory”

Recently, the crypto asset market cap fell from a peak of $2.502 trillion to as low as $1.351 trillion in the wake of growing high-profile concern over Bitcoin’s energy usage. Though climate change is a legitimate problem facing humanity, we remain confident in crypto’s net positive impact on global environments as explained here

Of course, no amount of research will change the fact that Bitcoin’s price, along with the rest of the crypto asset market, was heavily impacted by the fear catalyzed by Elon’s tweet. Look no further than the Crypto Fear & Greed Index, which set its lowest low in over a year on April 16th, to confirm the significance of this wave of amplified skepticism. As humans, we are inevitably subject to the visceral responses these sudden changes in market sentiment and the volatile values of our portfolios can bring. However, we are reminded of the adage “when in doubt, zoom out”. Bitcoin is still the best performing asset of the last decade. Fundamentally, its value proposition to society remains unchanged.

Gemini’s The State of U.S. Crypto Report 2021 is telling. According to their survey, Gemini estimates 14% of U.S. adults now hold cryptocurrency. Other studies estimate the number to be even higher. This marks a crucial transition along the crypto adoption curve. As history has shown, the percentage of customers that adopt an innovation over time can be split into 5 distinct categories across the risk tolerance spectrum: innovators (2.5%), early adopters (13.5%), early majority (34%), late majority (34%), and laggards (16%). Accordingly, crypto asset adoption is nearing the end of the early adopter phase as it tests entry into the early majority phase. Importantly to investors, this is where market cap growth begins to accelerate along the s-curve.

As we watch to confirm this transition, it is important to understand what distinguishes innovators, early adopters, and the early majority. Describing innovators, Icon Ventures Europe’s Michael Mullany writes, “…because they’re always enthusiastic about their latest Hot New Thing discovery, the Majority of the world tends to tune them out.” He continues, “The Early Adopters are where markets are made or broken. Early Adopters are the respected gatekeepers for new Innovations.” In contrast, “If Innovators care about what’s NEW and Early Adopters care about PROVEN VALUE, then the Early Majority cares about what’s POPULAR.” 

Prior to 2017’s ICO mania, Bitcoin and most other crypto assets’ narratives largely purported to be stores of value and peer-to-peer electronic cash (cryptocurrencies). Without widespread adoption, however, these networks were essentially proof-of-concept in comparison to their endgame visions for a decentralized monetary future. We can think of crypto asset users in this phase as the innovators.

In 2017, smart contracts built on the Ethereum network began to show promising development. Utility tokens for protocols like Compound, MakerDAO, and Bancor appreciated sharply as crypto assets gained traction on a new use case: decentralized finance, or “DeFi”. Filled with exuberance by the potential for crypto assets to supplant multi trillion dollar industries, investors threw a collective $4.6 billion at 430 ICOs (initial coin offerings) worldwide. For most of these projects, expectations were never realized. Though the bear market of 2018 was bleak on paper, early adopters paved the way for today’s market by monitoring progress and backing the most fundamentally sound crypto projects.

As Gemini’s study suggested the imminence of 15% U.S. crypto market penetration toward the end of 2020, it reasons that the 16% threshold marking the transition from “early adopters” to “early majority” is taking place in the bull market of 2021. Unprecedented institutional adoption, fundamentally void speculative mania, and a host of new financial on-ramps all exemplify key characteristics of early majority technological adoption as explained by Mullany: “They’re influenced by customer marketing: they care deeply about references and they trust Early Adopters to gate-keep new products. They often skip the detailed, show-me-the-value proof of concepts and trials that Early Adopters require.”

Once adoption reaches critical mass as the early majority enters, total percent adoption tends to accelerate. KPMG’s Consumer Adoption: How to predict the tipping point substantiates this idea, illustrated by the S-curve adoption model. Despite being the most dangerous four words in finance, we are open to the idea that in this crypto bull cycle, “this time is different.”

Source: KPMG

Dubbed the Supercycle, this theory suggests that mass inflow of retail investment will break convention. We believe this theory pairs well with the Lengthening Cycle Theory, popularized by prominent crypto analyst and founder of Into The Cryptoverse. Broadly, this theory suggests that Bitcoin’s market cycles are lengthening while producing diminishing returns. Unbelievable as it may seem today, this implies Bitcoin’s volatility will approach zero in 10-15 years. For Bitcoin to remain pursuant to both the supercycle and lengthening cycle theories, it must undergo even more massive adoption before stabilizing at the top of its theoretical S-curve.

Of course, digital assets are extraordinarily competitive and difficult to predict. Even among crypto enthusiasts, there are many who hope that Bitcoin’s narrative for perfect scarcity will be overtaken by assets like Ether. Only time will tell. What do you think will happen? Please drop a like, follow, share, or reach out to us. Crypto is all about community.

By Nathan Frankovitz

Crypto, Climate, & Confusion: Clearing the Air on Blockchain and the Environment

Cryptocurrency Sustainability

Cryptocurrency Sustainability

Millennials lead other generations on investing in two hot topics: Crypto assets, and climate and energy issues. Yet, some still argue that these investments are diametrically opposed due to the Bitcoin network’s considerable electrical demand. As of March 18th, 2021, the annual power consumption of the Bitcoin network was estimated to be 129 terawatt-hours (TWh), a staggering figure when compared to the entire country of Norway, which consumes 124 tWH annually. 

Counterintuitively, however, this doesn’t mean Bitcoin has a negative net impact on the environment. Like warm and cold air forming a tornado in the Great Plains, a whirlwind of colliding hype and doubt is obscuring the facts underlying today’s crypto assets. Bill Maher went so far as to say, “Almost all the people who tout Bitcoin, the millennials, the Gen Zers, the Silicon Valley types, are money-hungry opportunists and you’re not allowed to pretend you care about the environment.” Strong words for someone who, just minutes earlier, admitted “I’ve read articles about cryptocurrency, I’ve had it explained to me, and I still don’t get it, and neither do you or anyone else.” Even Elon Musk seems conflicted, having taken actions for and against Bitcoin’s case for sustainability in the last month. 

Accordingly, we must keep an open yet critical mind as we explore the interplay of finance and energy globally. Tweets and talk shows are insufficient for developing informed opinions on such a complex topic. We suggest Bill reads up on our industry-leading research before completely dismissing the fastest growing trillion dollar industry on earth.

Harvard Business Review’s May 2020 article “How Much Energy Does Bitcoin Actually Consume?” makes an important distinction: “…you cannot extrapolate the associated carbon emissions without knowing the precise energy mix — that is, the makeup of different energy sources used by the computers mining Bitcoin.” In other words, not all energy consumption incurs equal costs to the environment. Bitcoin mining is a game of margins, with the price of electricity being the chief factor. These incentives are driving miners towards “…better access to sustainable and renewable energy”, according to Argo Blockchain. In fact, data illustrating cost-efficacy improvements in wind and solar explain the 11% reduction in U.S. energy-related emissions of CO2  in 2020. As demand for decentralized finance grows, crypto mining is actually accelerating renewable resource adoption. Props to General Electric for predicting this trend in 2016.

The economic mechanism by which Bitcoin demand accelerates clean energy integration can be referred to as “energy arbitrage”. Essentially, certain places at certain times are exceptionally efficient at producing clean energy—the trouble is that these regions’ demand for electricity don’t always match production. In west Texas, Layer1’s Bitcoin mining operation perfectly illustrates the power of arbitrage. Most of the time, Layer1’s miners are busy converting cheap west Texan energy into Bitcoin. However, pursuant to their “demand response” contracts, Layer1 will shut down their machines to allow their 100 mw load to flow into the electrical grid. CEO and co-founder Alex Liegl explains, “We act as an insurance underwriter for the energy grid.” Ed Hirs, a University of Houston lecturer in energy economics adds, “It’s a lot cheaper option than building a whole new power plant or battery system just to keep it on standby.”

This form of arbitrage is replicated globally. In Iceland, “…abundant water and underground heat is harnessed by hydroelectric dams and geothermal power stations to produce cheap, green electricity that facilitates the energy-intensive process of confirming cryptocurrency transactions”, according to wired.com. In Sichuan China, Bitcoin enables overbuilt hydroelectric operations to make use of excess energy, as explained by Coindesk’s Nic Carter. “If your local energy cost is effectively zero but you cannot sell your energy anywhere, the existence of a global buyer for energy is a godsend.” The existence of Bitcoin’s global market de-risks renewable energy development as investors seek optimal conditions on the edges of civilization. 

We must also consider the impetus for Bitcoin’s rapidly growing global market: demand for a decentralized financial system. Progress towards this vision has been considerable since the onset of the COVID-19 pandemic, which spurred unprecedented manipulation of the monetary supply by centralized banks. This begs the question: how energy intensive are the financial systems that currently exist which Bitcoin and its orbiting crypto assets show promise to replace?

Let’s begin with the predominant narrative on Bitcoin today: Bitcoin replaces gold as a store of value. A 2019 study by Arca demonstrates how “gold mining in terms of crude oil usage accounts for 0.27% of worldwide oil consumption (directly comparable to Bitcoin’s electricity share)”. This approximation of equal environmental costs comes before factoring in gold transportation, storage, etc., in addition to the energy mix concept previously addressed. It also doesn’t account for decentralized finance’s ability to replace enormous shares of the traditional financial systems which expend energy across countless verticals. Bank branches, capital expenditures, employee commutes, aluminum mining, currency smelting, distribution, custody, etc. are just a few of the ways the legacy financial system expends energy to uphold a far less egalitarian and convenient monetary system. By virtue of being more perfectly scarce, more durable, and easier to transport, Bitcoin’s “distributed ledger technology” reduces the friction associated with gold’s (and other financial instruments’) existing use cases while opening new possibilities through its composability in smart contracts. The resulting reduction in friction allows financial systems to scale, accelerating financial inclusion for the “unbanked” and “underbanked”, as described in Deloitte’s Inside magazine issue 19

Equalizing access to financial services is not only a moral imperative, but an economic interest for all global-minded citizens. Many governments around the world practice ineffective and even abusive monetary policies that stifle innovation, such as in Venezuela. As the Venezuelan bolivar collapses, people are investing in food and water and resorting to bartering to preserve their purchasing power. These ancient ways of storing and exchanging value are clearly inefficient, and regression towards their use robs people of their life savings, time, and humanity. As we progress towards an increasingly globalized world, the billions left behind under such tumultuous economic conditions have little chance of realizing their potential. As a result, we all suffer.

In 1999, Forbes published an article titled, “Dig more coal — the PCs are coming”. In retrospect, these old skepticisms seem absurd. Inevitably, disruptive technologies create fear, uncertainty, and doubt—especially among those who hold stake in the aging systems. Like JP Morgan in 2017, incumbents cry foul until they realize what’s happening. “If you can’t beat them, join them” would make a great title for a memoir of these times in which financial institutions are piling into the crypto universe.

At Sarson Funds, we are not dogmatic about crypto investments. Our role is to provide evidence-based educational content on the rapidly developing realm of crypto assets while managing a broad set of portfolios for investors. We deeply respect the complexity of these emerging markets. Accordingly, we carefully choose which crypto projects we back. Though many projects will rise and fall in the coming years, a fundamental truth remains: We are dedicated to championing a future where all global citizens are united by access to fair monetary systems, financial services, and digital sovereignty. 

By Nathan Frankovitz

Man’s Best… Crypto? How Dogecoin Could Become “The Peoples’ Money”

Dogecoin to the moon

Dogecoin to the moon

According to the American Kennel Club, the Shiba Inu is an ancient breed of dog “…named after its history as a hunter in the rugged mountains of Japan.” In modern times, it also happens to be the face of an $81 billion dollar cryptocurrency named Dogecoin. The crypto asset’s meteoric rise owes its 9537% YTD (as of 05/04/21) gain to Kabosu, the original “Doge” that went viral in 2010. Admittedly, beyond its sensationally cute mascot and absurd catchphrases like “wow much coin,” “how money,” “so crypto,” “plz mine v rich very currency,” DOGE’s underlying value proposition is dubious. 

Of course, Dogecoin’s lightheartedness appears to be its greatest virtue. The crypto asset ecosystem is intimidating, veiled behind jargon that blurs the lines between finance, computer science, governance, and even religious fanaticism. Fortunes come and go easily for many cryptocurrency speculators, who often don’t understand the technologies underlying their investments. In contrast, Dogecoin.com makes no promises of grandeur. Opening in bold with “1 Dogecoin = 1 Dogecoin”, Dogecoin’s official site simply states, “Dogecoin sets itself apart from other digital currencies with an amazing, vibrant community made up of friendly folks just like you.” Born as a parody to Bitcoin in 2013, Dogecoin has and continues to grow from internet meme culture’s fertile grounds.

But if Doge’s fundamental value proposition is truly barren, how does it continue to climb the charts? Where is the “smart money,” and why aren’t they taking profits to reinvest in “real” projects? At the time of writing, Dogecoin is the fourth largest cryptocurrency by market cap. It has surpassed the leading oracle network Chainlink, the leading decentralized exchange Uniswap, and even the leading “Ethereum-killer” Cardano. With tens of billions of dollars invested in these crypto assets, Dogecoin’s success isn’t trivial. Rather, its massive capital inflows are drawing eyes.

On Tuesday, Galaxy Digital Research issued a report titled, “Dogecoin: The Most Honest Sh*tcoin.” Despite citing “zero development,” “no market infrastructure,” “barely any wallet software,” and the fact that “many exchanges still don’t support it,” the report acknowledges unique strengths possessed by Dogecoin’s rare breed, “…despite its deficiencies, Dogecoin has remarkably strong fundamentals and powerful forces supporting its rise: a genuine origin story, longevity, and a growing community of users who appear determined to meme a Shiba Inu-themed global currency into existence.”

Dogecoin traces its origins to Litecoin. In 2011, Litecoin forked from Bitcoin in an effort to provide faster and cheaper transactions while maintaining many of Bitcoin’s traits such as its proof-of-work mechanism and hard cap supply. Litecoin itself was forked numerous times, with one fork of a fork of a fork eventually resulting in Dogecoin. Like Litecoin, Dogecoin inherits many of Bitcoin’s core technologies while offering its own unique properties. Notably, Dogecoin transactions take only 1 minute to verify. In contrast, Litecoin takes about 2.5 minutes to verify transactions. Bitcoin transactions can take anywhere from 10 minutes to several hours, sometimes days, to confirm. While Bitcoin’s properties have attracted strong narratives for its use as a store of value, it remains a poor vehicle for day-to-day transactions. Dogecoin may prove itself fit to fill a niche for these types of payments because it is relatively quick, widely accepted across crypto communities, and satisfies needs for small but rapid daily transactions.

It is no secret that Elon Musk, CEO of Tesla and SpaceX, has played a pivotal role in Dogecoin’s recent growth. Renowned for his brazen sense of humor, Elon’s record for viral meme-inspiring tweets earned his candidacy and eventual status as “community-appointed CEO” for Dogecoin. The ensuing correlation between Elon’s tweets and Dogecoin’s price action demonstrates the power of Dogecoin’s community and value of network effects, illustrated by Metcalfe’s Law. Tech investor billionaire and outspoken crypto enthusiast Mark Cuban has joined chorus, tweeting, “As long as more companies take doge for products/services, then Doge can be a usable currency because it MAY hold its purchasing value better than a $ in your bank.”, adding, “…yes, a joke is now legit.” Consistent with his words, Cuban’s Dallas Mavericks began accepting DOGE as payment for tickets and merchandise online in early March.

On May 4th, leading crypto custodian and exchange Gemini (founded by the Winklevoss twins in 2014) announced it now supports Dogecoin. The blog post states, “Dogecoin is the people’s money. It’s organic, irreverent, and fun. It’s not forced on us by a government or some other central authority, it’s chosen by us, for us — by the people, for the people. Wow.” Strained as the non-satirical arguments for Doge may be, Gemini’s post raises considerable philosophical questions. “Yes, it’s a meme coin, but all money is a meme. And all money is both an idea and a matter of faith or belief in it.” Consistent with many pro-crypto arguments, it falls back to the fundamental supply and demand argument. “No one person, organization, or authority decides the value of a crypto – its value is determined by its supply and your demand for it. In Dogecoin’s case, its money supply is transparent, predictable, and disinflationary.”

Empowered by crypto, it is up to ordinary people to decide what money is to them. If the global financial system will one day operate predominantly on a decentralized monetary system, many ideas will rise and fall before then. In the meantime, the burden falls on investors to research and place their bets accordingly. Perhaps Musk said it best in his February Clubhouse interview. “Dogecoin was made as a joke to make fun of cryptocurrencies. But fate loves irony. The most ironic outcome would be that Dogecoin becomes the currency of Earth in the future.” If you want to see the next part of Elon’s Dogecoin saga unfold live, tune in to NBC’s Saturday Night Live May 8th. The Dogefather is hosting.

By Nathan Frankovitz

Atari Meets Blockchain: The Half-Century Journey from Silicon Valley to the Metaverse

The future of gaming: Atari Token

The future of gaming: Atari Token

Earlier this month, Atari restructured its business to create two separate divisions, Atari Gaming and Atari Blockchain. The announcement comes after years of development in the space, since Atari first publicly expressed its interest in crypto assets in early 2018.

In his foreword to the Atari Token Whitepaper, Atari CEO Frederic Chesnais points to the gaming industry’s progressive decentralization as support for the gaming giant’s strategic move. “Atari means ‘Revolution, Technology and Entertainment’. When I started to work on blockchain and cryptocurrencies, I immediately thought of creating a virtual currency that could be used in any video game.”, Chesnais wrote.

Launched in the fall of 2020, Atari Token ($ATRI) aims to “become the token of reference for the interactive entertainment industry”. The token’s first use-case is within crypto-casinos, where players can gamble in virtual blockchain-based games. Described by Reuters as “The ‘Metaverse’ Bet”, Atari has already initiated a two-year lease term on virtual land in Decentraland, a popular Ethereum-based virtual world. After licensing its own retro arcade, Atari celebrated its Decentraland Casino’s Launch Party with $10,000+ in prizes and a live set played by the platinum selling artist Dillon Francis.

With a growing economy of finite in-game lands, currencies, items, and services, Decentraland and its peers are blurring the lines between reality and virtual worlds. According to an article by Coindesk, an in-game competitor to Atari named Decentral Games began hiring for its virtual casino as early as February this year. 

More broadly, Atari seems to subscribe to the zeitgeist for crypto assets demonstrated by the rapid growth of DeFi, or decentralized finance. Chesnais continues in his foreword, “Like many other people, Atari fully supports the idea of ‘finance without borders’. That is why the number of people actively using crypto-currencies is steadily growing and approaching the psychological mark of 50 million.” Indeed, unlike the privatization of profits in the classical free market, Atari’s Blockchain initiatives appear to embrace publicly-distributed, player-owned virtual assets.

Atari cites upcoming trends backing their investment in Atari Token, echoing narratives already seen driving DeFi. According to their Whitepaper, the number of people with access to the internet will quickly climb from 4.5 billion to 8 billion. Many of these internet newcomers will have less robust identification records than existing users. These “under-documented and/or underserved individuals” lack access to financial systems that offer improvement to their economic condition, which may be alleviated by the maturing DeFi ecosystem. Atari also cites diminishing hardware costs, rising rates of self-education, and the replacement of cost-prohibitive financial services with increasingly reliable smart contracts. Each of these narratives bolster Atari’s assertion for an overarching “Mega-Trend: The Emergence of Online Smart Platforms Offering the Future of Work.”

“What we anticipate is the explosion of online platforms that offer tasks through smart contracts, using cryptocurrencies as the utility token that acts as the conduit for value or the medium of exchange.”, says Atari. For those already following crypto asset trends, this is not a bold claimit’s already the reality. The real question is, which tokens have the real “utility”? Further, which tokens’ prices, if any, will reflect value not just for the tokens’ utility, but also as a generally accepted “medium of exchange” derived from mass adoption network effects? With long-standing conflicts over which crypto assets best serve as money, Atari Token’s ambitions for utility beyond powering video-gaming platforms will not be realized overnight. 

Overall, however, we think Atari Token is poised to make strides in the crypto ecosystem. With a long-term, people-first strategy loyal to the broader ethos of decentralization through blockchain, Atari’s leadership and brand reputation could make its $ATRI token an indispensable part of the quickly emerging gaming metaverse. Ultimately, crypto assets depend on community consensus. If Atari Token demonstrates effective governance, trust, performance, and integration while fueling next-generation gaming experiences the brand was once known for, the best may be yet to come for Atari’s legendary history.

By Nathan Frankovitz