Too Many Chutes, Not Enough Ladders: Young People & Wealth Generation through Crypto

By Mark Lurie

Investment guru Warren Buffett called crypto a Ponzi scheme. JPMorgan Chase chief Jamie Dimon predicted Bitcoin will go to zero. As is often the case prior to major economic and cultural shifts, the older generation tells the younger to stick with the tried and true. Put your money in stocks, they say. Buy real estateLook to assets that have stood the test of time.

But this view is based on the assumption that the rules that applied in their youth still apply today. The fact is, while every generation has its unique economic challenges and opportunities, financial starting points often change radically across generations. Start, for example, with student debt. In 1975, the average American college graduate entered the workforce with the equivalent of $5,000 in student debt, adjusting for inflation. Since 2007, however, the average American college student has owed around $32,000 upon graduating — a more than six-fold increase in barely 30 years. Even today’s tech stars, as a result, start out behind the 8-ball. 

Next, consider initial public offerings, or IPOs. For decades they were seen as one of the greatest tools of wealth creation for the financial world and the American public. Microsoft IPO’d in 1986 at a $500 million market capitalization, and Amazon IPO’d in 1997 at $438 million. Today those companies are respectively worth $2.3 trillion and $1.57 trillion. Keep in mind that the US GDP is $21 trillion, so that’s a lot of wealth generation. 

IPOs today are a different animal. Higher regulatory requirements for going public, massive funds like Softbank willing to invest vast amounts in late-stage startups and market structures that favor high-frequency traders and hurt institutions with large positions in smaller companies have pushed tech companies to IPO later and later. As of mid-May, more than 500 tech firms have a valuation greater than $1 billion yet remain private — this would have been unimaginable as recently as a decade ago. 

As a result, when today’s unicorns finally do make their public debuts, much of the price appreciation has already happened. These companies are long past their adolescent growth spurts, with valuations up into the tens of billions, which means the massive financial gains previously made through IPOs have already been taken by venture capital firms and angel investors. The investing public is out of the loop. 

Third, look at international investment. Older generations started off on the gold standard, which the US used to establish the US dollar as the world’s reserve currency. Nixon abandoned the gold standard in 1971, but the dollar had already established its dominance as the currency in which trade was denominated. 

The dollar remained the standard even without hard backing, enabling the US to issue almost infinite Treasury securities that the world’s businesses and central banks had to buy to maintain reserves in the event of a currency crisis. In 1971, the US owed $400 billion to holders of its Treasury securities, or roughly 40% of then GDP. Today, the US owes $30 trillion in debt, or 120% of GDP. The older generation essentially used the US departure from the gold standard to mortgage the US. 

What happened to all that money? It was mostly invested in the US economy through government programs, military spending, and housing stock. But that can’t go on forever. We are living in an increasingly multipolar world as Russia and China seek to break their dependence on the US dollar as a reserve currency and SWIFT as the primary means of international money transfer. This will likely lead to decreased demand for US treasuries, even if we weren’t already mortgaged up to our eyeballs. As a result, the younger generation may not see much of the massive investment and infusion of international capital previous generations leveraged into wealth. 

As a result, a wide swathe of today’s under-30’s are either resigned to being worse off than their parents or determined to seek solutions that buck legacy trends. No wonder, then, that many younger investors are willing to take such big swings with crypto - not out of mindless greed, but rather as the only path to the financial security their predecessors achieved through decent wages, a bit of savings discipline and an eye on the stock market. 

Despite recent market stumbles, Crypto is not just a promising alternative investment – it’s a rejection of the unbalanced focus on a handful of legacy asset classes. Blockchain-enabled assets aren’t so much a complete departure from traditional investments, but rather an opportunity for everybody to acquire a wide range of currently illiquid assets, such as ownership of earlier stage technology assets represented by tokens.

The current economic situation may seem unfair to younger investors, but their financial challenges are the result of structural weaknesses and inertia, not malice. Every generation must overcome that latest form of inequality created by unsympathetic markets. And in a global economy that is increasingly unequal, younger investors may face the greatest risk by doing nothing. 

As of April 2022, roughly three of four Bitcoin owners would make a profit if they were to sell their holdings. That number has since changed, and the asset is admittedly volatile, but the outlook for crypto remains strong. 

The market will never stop teaching us new lessons about stablecoins, for instance. Yet as new DeFi platforms push crypto beyond simple spot trading and speculation, younger generations are using blockchain-enabled tools to prove that financial success can be re-engineered.

Rather than lecturing today’s twentysomethings, elder financial statesmen might instead ask themselves why they’ve left the next generation a financial system that offers little of the wealth generation they used to build their fortunes and legacies. 

Mark Lurie is the CEO & Co-Founder of Shipyard Software. He is a serial entrepreneur and investor who previously founded two venture-backed startups. One of these startups, Codex, is a blockchain-based title registry for art & collectibles used in the offline auction world with 500,000 NFT titles created (ICO 2018). Prior to Codex, Mark founded an online marketplace for art & collectibles, which was acquired in 2016. Previously, Mark was an investor at Bessemer Venture Partners, where his investments included Twilio (TWLO). He is currently a Venture Partner at FJLabs and a board member of GMO Trust (issuer of GYEN, the first Yen-backed stablecoin) and the Foundation for Art & Blockchain (a 501c3 nonprofit). He has an MBA from Harvard Business School and a BA in Economics from Harvard College. Mark also spearheaded the legislative push to legalize DAOs in the Republic of the Marshall Islands, marking the first sovereign nation to allow DAOs to incorporate as legal entities. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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