Trending Towards EM
Why an "emerging market" classification might be exactly the refresh the industry needs
I have consistently enjoyed the updates from Marex Solutions since I began subscribing. I find Ilan’s comments and thought process to be concise and also to maintain a measured level of optimism regarding the digital asset ecosystem.
The latest piece, From Existential to Irrelevance Risk, published 18 September inspired me enough to pen this response. I like this frame of reference, maybe not all of the specifics entailed in being considered an “emerging market” but nevertheless it struck a nerve. This part specifically:
Source: Marex Solutions, 18 September 2024
In early 2021, Crypto was a panacea. Every industry was going to be disrupted from healthcare to high finance, every incumbent torn apart. A peculiar cucumber connoisseur was even going to buy Goldman Sachs... Well, we know how the rest went. Growth was not delivered. Most price charts (read returns) closely resemble the Burj Khalifa, many ideas proved to be just what they seemed (futile, if not fraudulent or completely useless), and much of the bubble deflated after a string of high profile shenanigans. Today, a fair amount of capital is still trapped in crypto, whether it knows it or not. Plenty of participants seem content to put their heads in the sand utilizing valuations from this “pre-reality” era. This is a fantastic farce, we need to move forward and adjust to our actual reality.
What has been built is anything but worthless, much to the contrary. Potentially ahead of itself form a valuation standpoint but entirely valuable. We have global rails that will enable the next Visa, complex capital markets infrastructure that can outwit much of what Wall Street has built up over decades, and hundreds of new design and financial paradigms that will reshape how we think about ownership on the internet. What we will see next in the crypto markets is the same split we saw in emerging markets. Take the following examples:
India: Everything went up in the past ten years, even if valuations were high
Taiwan and Korea: Both highly successful markets, though both now maintain a fair amount of existential risk just given their geography
Poland: Flat over ten years
Turkey: Negative over a ten year period
This is not meant to be an exhaustive list, it is meant to demonstrate variance - lumping everything together as “emerging markets” is not correct
And now, what if we substitute in some crypto-specifics:
L1s: Everything went up in the past
tenfive years, even if valuations were highDeFi and Stablecoins: Both highly successful markets, though both now maintain a fair amount of existential risk just given their
geographypolitical proximityCrypto gaming: Flat over
tenfive yearsNFTs: Negative over a
tenfive year period
Choose your focus wisely, these markets are no longer going to be broadly up 10x. In the next decade perhaps Bitcoin will become a $20T asset and the real trade was to lever it up a bit then go to the beach for an early retirement, perhaps not. Maybe it will be infrastructure that wins the day and bails out the billions that have invested into it. I suspect success will be more divided sector-to-sector rather than for crypto as a whole. This is important, isolate your “Korea” or “India” versus your “flat-over-ten-years market”.
A hat tip to “Blockchains as Cities” but this shoe no longer fits. If we begin to morph our thinking into verticals as their own emerging markets, the framework begins to make more and more sense. Emerging markets are the right training wheels as the industry continues to churn and move forward, acclimate accordingly. I will remind readers that the EM market capitalization is well over $28T currently (Goldman Sachs) and expected to grow faster than established markets, so this is hardly a step back.
Onward.
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