The New Investors

When you read about Bitcoin, cryptocurrencies and blockchain you might hear phrases like “It’s going to revolutionise X’, ‘It will democratise X’, or ‘This means the decentralisation of X’. Finance, payments, transactions, prediction markets, storage…you name it. These spaces are ‘going to be’ revolutionised by blockchain and cryptocurrencies in the future.

But there is one space where we don’t need to speculate about what’s ‘going to’ happen. One space which blockchain tech has already revolutionised as a point of fact: Investing.

One way this is happening is with ICOs or Initial Coin Offerings. This is essentially a form of crowdsourced funding, where instead of seeking angel investors or going public with an IPO (an expensive and difficult process) the startups offer up a ‘Token’ – i.e. a unit of a new digital currency, ownership of which represents a stake in the company. The startup generates these and sells them to those who believe the project is destined for success (and with that success an appreciation in the valuation of its token). This is ‘decentralising’ funding away from the investment banks, angel investors and wealthy few, and allowing the average you and I the chance to invest in a company we believe in, and to do so rather easily outside of the traditional investment structure of banks, exchanges and so forth.

Take a look around at the people who believe in and invest in digital currencies, ICOs, and the projects they underpin. These do not fit the typical investor profile. They are more likely IT specialists, enthusiasts, or straight up nerds (don’t scoff. Remember – the geeks shall inherit the earth). They can also be the anti-establishment types whose desire to research everything crypto stems from ideological beliefs. The average age is also a lot younger than the typical investor, I’d wager. Whatever their background, the point is they are interested in investing in crypto because they know their subject, are excited about it, enthused enough to research it and ultimately have the confidence and belief to invest their own money.

By contrast, the typical investor doesn’t understand Bitcoin, and because they don’t understand it they don’t invest. Not yet. Partly because traditional exchanges and fund supermarkets don’t yet offer digital currency investments, but more so because of mistrust of the unknown. Investor Peter Lynch once said don’t invest in something you can’t explain with a crayon. Hyperbole, yes, but the point he was making was to not invest in something you don’t understand. This is why the investors in Bitcoin and altcoins look different. Because while they might not know what a hedge fund, ETF or FTSE is, they do know what a blockchain, an ICO, a hard-fork or a Segwit is.

Horses for courses.

And who knows, these new investors might get a taste for this personal finance malarkey and branch out into other areas. Go to any cryptocurrency community and you’ll hear a number of voices expounding the benefits of spreading risk and putting some money into Gold or Silver. And this is how blockchain is democratising investing.

Now, where are my crayons?