Investing has never been cheaper now for the average investor in the history of Mankind. The internet
has brought about transparency in the investment world, political world, and technology world. The
average investor and company sponsored retirement plans have transferred their money in mass
quantities to index funds to lower costs and avoid fiduciary responsibility law suits. So what does all this
have to do with Cryptocurrencies?
According to a widely respected website for investing definitions, Investopedia.com defines
‘cryptocurrency’ as “a digital or virtual currency that uses cryptography for security”. So cryptocurrency
is another currency…great! According to Travelex.com there are 180 world currencies and the newest
currency created was South Sudanese pound which was made official on July 18, 2011. Why so many
currencies? Perhaps each country prefers to use currencies printed by their own government. Why is
he value is those currencies? The value of currencies is derived on the ecosystem that the governments
have created. If there is no value in that ecosystem, like Venezuela, then the currency has no value.
Now, Investopedia.com has defined an index fund “as a type of mutual fund with a portfolio constructed
to match or track the components of a market index, such as the Standard & Poors 500 index. An index
mutual fund is said to provide broad market exposure, low operating expenses and low portfolio
turnover”. When an investor decides to invest into an index fund, do they not invest in the ecosystem
that those companies operate? Index funds can be USA based or International or both. But in any case,
from an investor’s point of view, index investing is ‘Ecosystem Investing’ created by those companies
that are members of the index. In other words, individual companies are participants of the index
ecosystem. In many cases, individual companies do business in the world partnering in many countries
using different currencies to transact which makes index investing an ‘investment hedge’ against
inflation.
To value a ‘cryptocurrency’, one needs to analyst the ecosystem. What kind of value will that ecosystem
bring to the investment world? One recent example of a cryptocurrency ecosystem merging with two
major participants in an equity index was the announcement of “American Express, Santander team up
with Ripple for cross-border payments via blockchain” on CNBC on Thursday 16 Nov 2017. Those are
two multi-billion dollar corporations now being added to the Ripple ecosystem, thus building value and
confidence in the cryptocurrency.
In conclusion, as more and more developers build services and products, and as more existing
multinational corporations join the cryptocurrency ecosystems over time, cryptocurrencies will not only
be another currency out of 100s, but will also evolve into a low cost, broadly diversified, tax efficient
index fund that everyone would be able to invest in.