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December 6, 2019
A few years back, the tech pioneer John McAfee predicted that the price of bitcoin would reach $1 million by the end of 2020. He’s sticking by his prediction.

I don’t make price predictions, but I do try to spot trends. If we can identify what’s likely to happen, and how it will likely shape the industry, then we can invest in what will likely be profitable.

A far better prediction, in my mind, was given by Florian Glatz, Co-Founder of Fundament Securities:
The digitization of national currencies will continue its momentum into 2020 as more central banks and governments warm to the idea.

Not as sexy as “$1 million bitcoin,” but potentially a far bigger prediction, because Florian is talking about digitizing the global economy. In other words, moving the world’s money supply onto blockchain: the Internet of Money.

Florian points out that the People’s Bank of China has already announced its digital yuan, which will likely launch in 2020. My prediction is this will start a “digital currency war,” as other nations around the globe race to develop their own digital currencies: the Digital Dollar, the Digital Euro, and so on.

(Indeed, the European Central Bank is stepping up its efforts around digital currencies, with a new initiative starting January 1 to help central banks throughout Europe understand the benefits of a digital Euro.)

While the U.S. dollar holds immense power over the global economy—power that a Chinese digital yuan will not overturn overnight—the digital yuan could become the preferred payment method for the “underground economy,” which is about 20% the size of the overall economy.

China’s digital yuan will set off what I’m calling the “Cash Clash,” the digital currency equivalent of the Space Race. But China is only one controlling factor; the other will be Facebook’s Libra project.

In his excellent article The High Stakes of the Coming Digital Currency War, Harvard economist Kenneth Rogoff pointed out that the U.S. Congress does not exactly like Facebook’s proposed digital currency, but it will probably like a Chinese digital currency even less.

Regulators have been able to keep digital currencies like bitcoin from going mainstream by making it difficult for banks to accept them. (That’s why it’s so hard to get a bank account if you’re a blockchain business.) But if Facebook is the bank—the place where you hold your Libra digital currency—it could become an economic superpower overnight.

So the two options are public or private. Either the governments start creating their own digital currencies, or companies like Facebook will. That’s all happening in the year ahead. Yee-haw!
Digital Currencies and Digital Assets

We’ve just discussed digital currencies; now let’s turn to the other category of blockchain projects: digital assets.

Digital assets are everything that’s not “money”: real estate, fine art, sports teams, etc. I’m also including bitcoin, which was originally intended as a digital currency, but is really used more widely as a store of value, like gold.

Rule of thumb: If it’s mostly used for spending, it’s currency. If it’s mostly used for investing, it’s an asset.

As we’ve been predicting for several years, a new class of “digital assets” will emerge, where we tokenize something of value (i.e., split it into fractionalized shares, like shares of a company’s stock), then let investors buy and sell these blockchain tokens.

Already you can invest in tokens from NBA players, ski resorts, and Philadelphia businesses—assuming you’re an accredited investor who can afford to invest $25,000 or more. That puts them out of the reach of most ordinary investors.

The high cost of “buying in” is the first problem. The second problem is that tokens are actually quite complicated to set up. Let’s say you’re tokenizing a piece of real estate. Like someone issuing stock in a new company, you have to think about all these future scenarios:

  • Can more tokens be created in the future (like a stock split), or is there a fixed supply?
  • Can you have a fraction of a token (like pennies and the dollar)?
  • Is each token unique (like a dollar bill’s serial number), or is one token identical to every other token?

There are dozens of these decisions to make when tokenizing a new asset, and there aren’t many “best practices” yet. That’s why the Token Taxonomy Framework, put together by a group of blockchain industry all-stars, is such a step forward.

The idea behind the TTF is to identify the “ingredients” that go into a token (divisibility, fungibility, and so on), so that people can more easily create “recipes” to launch a new token for their digital asset. Think of it like a plug-and-play framework for new tokens.
These are the building blocks that will be needed before digital assets can really take off. As the TTF gains more widespread acceptance—and it will—we’ll see more tokens launched, more quickly.

As we see more innovative token offerings, some of these digital assets will start to capture the public imagination—like the tokenized offering of Spencer Dinwiddie’s Brooklyn Nets contract, which was the topic of a lengthy Sports Illustrated analysis. That’s sexy—and sex sells.

The Ten-Year Plan

My colleague Mike Wise encouraged me yesterday not to think about 2020, but to think about the 2020s. What will blockchain bring us over the next decade?

I reflected on the year 2000, when the dot-com crash seemed like the technology industry would never recover. Within ten years, of course, tech companies like Apple, Amazon and Google were among the most powerful companies in the world.

Today, it may seem like digital currencies and digital assets are still just a weird little experiment. But the seeds of mighty oaks have been planted, and once they finally start to sprout, those trees grow incredibly fast.

I doubt bitcoin will hit a million dollars by the end of next year. But by the end of the next decade, it very well might. And some token, some digital asset, certainly will.

Hang on. It’s going to be an amazing decade.

Health, wealth, and happiness,
John Hargrave
Bitcoin Market Journal
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