Unrestricted Investing

Teeka Tiwari on Bitcoin’s “Second Boom”

Nick’s Note: For the past few weeks, Palm Beach Confidential editor Teeka Tiwari has been pretty much under the radar. We’ve gotten a lot of emails from people asking what he’s been up to… So, I called Teeka and asked him what’s going on.

Nick: T, you disappeared the last few weeks. Where’d you go?

Teeka: I was invited to a private meeting of blockchain professionals. There were financiers, developers, coders, and visionaries there. Even one of the founders of Ethereum was in attendance. It’s rare to get all these types of people in the same room.

This was a room full of heavy hitters. I learned a lot at this meeting… But perhaps the most important thing is that investment in blockchain projects is not slowing down. In fact, it’s probably accelerating.

Normally after an industry drops 50% (the way the crypto market has), investors flee—especially the professionals who are involved in early-stage deals. Financing usually dries up after a crash like we recently had. But not with blockchain technology…

I’m seeing major top-tier venture capital firms step into this space for the first time. These guys missed the big gains from 2014–2017. But they’re trying to make up for lost time and are now making lots of investments.

Last year, according to investment analytical firm PitchBook, there were 377 deals done in the blockchain space. Already in the first two months of 2018, there were 138 completed deals. That means we’re on pace to see about 800 deals this year—more than double the amount of deals from last year.

This is going to lead to an absolute explosion in the technology.

Nick: Recently, you told me about a “second boom” happening in the crypto space. What’s driving it?

Teeka: Like any new industry, the crypto space was very small at the beginning and only the most diehard believers worked on developing it. And most of those people were hobbyists working on nights and weekends.

But that’ll change soon. With all this financing, the blockchain space has the money needed to attract the best and brightest coders in the world.

In fact, right now, kids coming out of college who have degrees in computer science want to go into either artificial intelligence (AI) or blockchain companies. They don’t want to work at Facebook or Google anymore.

One simple strategy I’ve followed throughout my investment career is to follow brainpower to profits. It has done exceedingly well. It got me into internet stocks in the ’90s and now it’s gotten me into the blockchain.

It’s impossible to have this many bright people working in an industry and not create value. Profits will inevitably follow.

Nick: Why is so much brainpower headed into blockchain development when smart old guys like billionaire investor Charlie Munger and JPMorgan Chase CEO Jamie Dimon are calling bitcoin a “fraud”?

Teeka: Let me ask you—who has the most to lose from the rise of the blockchain? It’s guys like these who have made millions—even billions—of dollars from the traditional banking system.

They can’t even see a banking system outside of the traditional one that we’ve used for the last 300 years. And in their minds, anything else can’t be legitimate. So they go out and call this new technology a “fad” or a “fraud” to undermine it.

In 1994, Bill Gates was quoted as saying, “I see little commercial potential for the internet for the next 10 years.” So having smart guys say dumb things about emerging technology is nothing new.

But you know where the real fraud is? It’s in the traditional banking system.

Do you know how much JPMorgan has paid to settle allegations of fraud during Jamie Dimon’s tenure? It’s in the billions.

And the same is true for Wells Fargo—which Charlie Munger just came out in defense of. But he came out defending Wells Fargo because that’s the largest position in his investment portfolio (at least according to the recent annual letter just released).

This isn’t even counting the multitrillion-dollar LIBOR scandal. Yes, I do mean trillion-dollar scandal.

[LIBOR stands for London Inter-bank Offered Rate. It’s a common benchmark interest rate index used to make adjustments to adjustable rate mortgages.]

Millions of people and small businesses are paying loans that are tied to the LIBOR rate. And they had to pay more on their loans because a couple of people manipulated the LIBOR rate.

This kind of manipulation wouldn’t be possible on an open and transparent ledger like the blockchain.

If I’m looking at the sanctity of traditional banks versus the blockchain, I’m picking the blockchain every time.

Nick: Why aren’t the old guys seeing what you’re seeing?

Teeka: Because they lack imagination. Every major, life-changing invention has been met with resistance—even electricity.

When electricity was first introduced, people figured they’d lived their lives this long without it and had been fine. Why use it now?

When electricity started, they had salespeople going door to door trying to get people to agree to use it. And most people declined the service because they didn’t need it.

The most successful sales strategy for selling electricity was to get people to hook it up to their chicken coops. This tricked the chickens into thinking it was daylight longer so the hens would lay more eggs.

Electricity to the home was arguably the most important technology of the 20th century and most people couldn’t see it!

The same thing happened with cars. Even as cars started to roll down the road, people couldn’t imagine a life without horses.

Today, many people can’t imagine life without the big traditional banks.

Nick: So does the blockchain mean the end of big banks?

Teeka: I don’t think it’s an all-or-none argument. We still have horses, just not as many! But seriously, what we’ll see first is a system running parallel to the traditional banking sector.

We’ll see fintech (financial technology) companies start their own services. They’ll have a blockchain-based system for determining interest rates.

They’ll provide other deposit and loan services. And people will start using these services because they will pay more on deposits. And they will create loans with lower, more transparent interest rates and fees.

It won’t mean the end of big banks, but they are scared. Their profit margins will get squeezed by these upstarts. Just give it a couple years and we’ll see drastically different financial services.

That’s why we’re seeing all this money flowing into the crypto space. The disruption will be incredible and these investors want a piece of the new financial system.

We’re still in the early innings of the crypto bull run. Hang on, be patient, and the gains will come to you.


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