If you glance at the headlines of a finance or business publication on the right day, chances are high that you’ll read about some activity in the digital currency or cryptocurrency space.
Bitcoin, ethereum, and initial coin offerings (ICOs) are just a few of the cryptocurrency terms frequently seen in newspapers and business journals, especially on days when the the prices rise or fall sharply.
Over the last year, the value of bitcoin has increased over 700%.
With billions of dollars in trading volume moving each day, it’s easy to believe that cryptocurrencies are now mainstream. This couldn’t be farther from the truth.
The fact that is frequently not mentioned is that over 99% of the world’s investable cash is still sitting on the sidelines and hasn’t touched the cryptocurrency space.
What does this mean? Well, the public adoption, regulatory scrutiny and broader societal impact of alternative currencies isn’t yet fully realized; in fact, it’s not even close.
According to a study by the University of Cambridge, nearly 2,000 people are employed full-time in the bitcoin and broader cryptocurrency industry. Compare that to the over six million people employed in the traditional finance and insurance industries. Six million!
While the two fields will likely not reach parity any time soon, it’s not far-fetched to believe that the former will continue to grow while the latter will decline. What’s more realistic is that the two industries will eventually merge and become undifferentiated.
The same Cambridge report also highlights that over 300 academic articles have been published on topics relating to cryptocurrencies. When you consider how other technologies had their early roots in academia, this creates another market indicator for what cryptocurrency growth could be on the horizon.
Obviously, I’m not alone in this thinking. Many prominent and wealthy individuals have publicly stated their long-term bets on the growth of bitcoin and related currencies. For example, hedge fund billionaire Michael Novogratz put a reported 10% of his net worth in this stuff.
Early Facebook executive and prominent venture capitalist Chamath Palihapitiya also regularly comments on how much of his wealth he invests in cryptocurrencies.
Tim Draper, another high net worth venture capitalist, has also been investing for many years. His 2014 appearance on Worth Magazine’s list of “100 Most Powerful People in Finance” may speak to where things could be heading.
Still, the fact remains that the vast majority of all global wealth is not in the cryptocurrency game.
As news coverage and coffee shop conversations continue to surface, more of this money will move off the sidelines and into the market. This will lead to massive changes, both good and bad.
As with any other aspect of finance, when public interest grows without a reasonable amount of domain expertise, the risk of fraud grows as well.
The government is still in the early days of understanding how to handle this. For example, the Securities and Exchange Commission (SEC) began publicly addressing potential concerns earlier this year.
While some proponents and fanatics of bitcoin may claim this looming regulation as a fraying of innovation, it’s probably a smart move for the SEC to play some type of role. The average consumer can easily become victims of nefarious schemes that use technology for fraudulent activities.
Just type “bitcoin scam” into a Google search and see how many news articles come up.
Floyd Mayweather, the flashy and outspoken champion boxer, even joined the craze by pumping up a cryptocurrency initiative he was involved in. The legitimacy of the company and their long-term plans aren’t well-known yet but will likely come under scrutiny now that it’s in the public eye.
Mayweather may the first high-profile athlete to do so, but what happens when other athletes, actors and financial advisors start advocating that the 99% of uninvested capital get involved? Time will tell.
I couldn’t be more bullish and excited about the potential benefits that cryptocurrencies will bring to society, but I also urge caution as people dip their toes in the water of this currency innovation.