The potential of tokenization is incredible. This is going to be the greatest financial boom in human history. We are going to a lot of things financialized that are presently not.
Of course, there are detractors from them concept. The challenge is they are looking at it through the present system.
It would be akin to talking about the grow in the world's information and then stating how this is a problem because the Pony Express cannot handle it. Under this scenario, the problem is not the information but, rather, the system.
The same is true for hyper-financialization. Everything we are dealing with is against the backdrop of the present banking system.
In fact, we get a regular reminder of this issue every time we see this individual:
This guy is tasked with protecting the existing establishment. Notice how he answer if Ethereum is a security, a concept used in applying laws that date back to the 1930s.
AI And Crypto Will Bring About Hyper-Financialization
Markets tend to be driven by emotion. This is what happens when humans are involved.
That said, the core catalyst is information. What we actually witness is the human reaction to it. Here is where people make decisions, often emotional, about what they think is taking place. Perception is powerful albeit often misguided.
How often have we see a bit of news, something that we think would cause a move in one direction and the market does the exact opposite? This is a common occurrence.
The reality is the larger players, i.e. institutions, tend to have a great deal more information than the average person. This provides a massive advantage when it comes to predicting moves. Their "expertise" surpasses the retail investor in many instances.
Here is the key: expertise.
There are situations where the reverse is true. Some investors become so knowledgeable about a company, their analysis far surpasses anything Wall Street puts out. Mind you, this is not the norm.
Actually, we see this in cryptocurrency.
Wall Street does their analysis like it is simply another asset class. This is par for the course since that is how they approached the Internet a few decades back. What happens is they miss the entire story as it is unfolding.
This is an example of how expertise can favor those who are paying attention.
Everyone Has Expertise
Hyper-financialization means that everything can be quantified. This presents investment opportunities. It can also play into the knowledge that specific individuals have.
For example, I might not be able to decipher whether Walmart is a good investment or not. Perhaps I do not follow the retail sector enough. However, what if I am a logistics expert? This is certainly something is part of the equation for a company like Walmart.
Imagine being able to invest only in the company's logistics? Or their electronics division? Or their Southeast region.
This is possible with hyper-financialization. We can see things broken down into smaller levels whereby individual expertise enters.
The result ends up being a more accurate predictions market. I can go buy ABC stock believing it will go up, thus casting my vote. That does not mean, however, that I have any clue about it. Unfortunately, the same is true for many money managers.
Of course, we see the issue of liquidity start to become a problem. As we see with crypto, the activity on Bitcoin does not present much of a problem. However, find a token that is ranks number 5,842 and you will likely have liquidity issues.
Here is where concepts such as AMMs are worthy of exploration. Incentivization has to be provided to not only infrastructure but also liquidity providers. It is where AI starts to take on a larger role.
AI = Deflationary
AI has the ability to drive costs down.
Going back to the information analogy, what is the advantage today over 150 years ago?
To start, the cost of storage is nothing compared to the past. Having a digital file on a hard drive cost less than a file folder of a few decades back. We also see the cost of document production dropping to nothing. The most recent breakthroughs with chatbots really show this.
Then we have the distribution.
It was not that long ago where a report distributed to 50 employees meant making copies for each and then physically passing them out. Now the process of information distribution is the same whether within an office or across the world.
Can you imagine trying to move the amount of information we do on a daily basis using horses and riders? Of course, that is absurd. Yet that is exactly what we do with the basis of this discussion.
To compare the impact of hyper-financialization with a system that is run by a cartel (banks) and protected by government entities who erected so much friction that the system is paralyzed is equally as foolish.
The cost declines due to technology expand the assets that are compatible with markets. Unfortunately, this is not fully realized when a system is full of gatekeepers and monetary extractors.
Things Will Be Radically Different A Few Decades From Now
People tend not to realize how much things are changing. Some still maintain that life hasn't changed that much.
The problem with this viewpoint is, while it could be true overall, there are certain facets of society that have been forever altered. The example of information is just one. There is nothing similar about how we generate, store, or distribute it as compared to a few decades ago.
With advancing technology, we see the scope of impact much greater. The 1990s were just a digital warm up for what we will see over the next 20 years.
Finance already experienced a lot of changes. That said, many of the same players are still rooted in the system. Therefore, we had some transition yet it was surface level stuff such as checking our accounts or applying for a loan online. It did not alter the root structure.
But have no fear, Gensler is here to ensure the same entities are protected.
Sarcasm aside, what these people do matters none. Technology not only impacts but is also advanced on a global basis. No one country has control. It is best to look at this like water. If it gets dammed up in one place, it simply moves to another.
As the system changes, the opportunities will expand, allowing for people to invest in their areas of expertise. For example, suddenly a chemist could invest in a material technology that has potential without having to deal with the overall company. If the person is optimistic about what the potential is, he or she can go long on the token tied to that material.
Naturally, this is something that the average person would have no clue about. Under this scenario, we would be considered "dumb money". The chemists of the world, on the other hand, have the expertise. The totality of their outlooks provides a more in depth approach.
At the same time, a particular material might have tremendous potential yet the company it is tied to is a train wreck. Here is where tokenization also can enter.
I have a feeling, comparing finance and money in the 2050s to today will be akin to what we detailed with information. This is common with technological Evolution. Picture for a second trying to explain texting to someone from the 1890s. That for of communication would be completely Alien to them.
Yet we take it for granted.
Tokenization is going to change everything related to finance. The tentacles are going to penetrate every area of life.