Dara Albright is the President of Dara Albright Media. She is a recognized authority, thought provoker and frequent speaker on topics relating to fintech, digital-, peer- & crowd- finance. Dara co-founded Lendit – the largest and most recognized global p2p & online lending conference as well as FinFair, the first conference platform to feature the leadership, products and technologies driving the crowd-centric retail alternatives market. We recently sat down with Dara, who will be speaking at our Digital Asset Strategies Summit (Oct. 16 – 17 – Dallas), as she shared with us the game-changing impact cryptocurrencies will have including ultimately displacing equities.
Digital Asset Strategies Summit: How will the current political environment influence the cryptocurrency market?
Dara Albright: On my current radar are a number of recent legislative and politically-driven events which I believe could have widespread implications for the cryptocurrency market.
First, I am keeping my eye on the JOBS and Investor Confidence Act of 2018 – also referred to as JOBS Act 3.0 – which just passed the House by a 406-4 vote and received praise by President Trump. Among other things, the bill broadens the definition of accredited investors from those who qualify based solely on meeting financial thresholds to include those with financial job experience and investment knowledge. Expanding the accredited investor definition is something that I have been advocating for quite some time as I believe it is a significant step towards democratizing access to investment opportunities as well as narrowing the national wealth gap. If nothing else, the strong bipartisan support for JOBS Act 3.0 demonstrates a willingness by both parties to ease some of the regulatory restrictions and injustices presently faced by smaller retail investors. Shifting the barometer from net worth and income to knowledge and expertise could significantly alter the domestic ICO landscape by fueling the growth of STOs (Security Token Offerings) – especially Reg D STOs – thereby empowering crypto to become a more mainstream financial product.
While JOBS Act 3.0 looks very promising, I found the comments made by Rep. Brad Sherman at the recent congressional hearings on virtual currencies to be extremely troubling. Sherman essentially called for a blanket ban on buying or mining cryptocurrencies – including the incarceration for issuers of crypto-offerings. While Sherman’s harsh and ill-conceived views were certainly in the minority, I worry that the ongoing Russia investigation – which seems to implicate cryptocurrencies as the method used to fund illicit activity – may give them more prevalence.
I am carefully following the Russia investigation as it relates to the usage of cryptocurrencies, for I believe it will increasingly force crypto into mainstream news conversations as well as create the impetus for regulators to expedite the implementation of the regulatory regime for cryptocurrencies. I am optimistic that both the intensified mainstream awareness as well as the regulatory clarity will only help accelerate the growth of the cryptocurrency marketplace.
Digital Asset Strategies Summit: Does the SEC have the infrastructure necessary to properly regulate cryptocurrencies?
Dara Albright: According to the SEC’s 2019 budget request, it appears to be lacking the resources presently needed to effectively regulate cryptocurrencies.
In its FY 2019 budget, the SEC is requesting $1.658 billion – a 3.5% increase over its FY 2018 budget request of $1.602 billion. While that seems like a substantial figure, consider that the SEC presently oversees approximately $75 trillion in securities trading annually on U.S. equity markets and the activities of over 26,000 registered market participants. Additionally, the SEC also oversees 21 national securities exchanges, 10 credit rating agencies, and seven active registered clearing agencies, as well as the Public Company Accounting Oversight Board (PCAOB), Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC), and the Financial Accounting Standards Board (FASB). Furthermore, the SEC is responsible for selectively reviewing the disclosures and financial statements of over 8,000 reporting companies including 78 of the top 100 public companies in the world.
In addition to all of that oversight, the SEC has the daunting task of keeping pace with financial innovation which is continuously advancing at warp speeds.
A mere 3.5% increase in funds is barely enough for the SEC to meet its present responsibilities. How is it going to be able to meet the challenges of overseeing an entirely new and complex asset class that is rapidly scaling and constantly evolving through technological innovation?
The lack of adequate resources will not only result in a logjam of issuer qualifications but also delays in framing and implementing the rules for cryptocurrencies. The longer the wait for regulatory clarity, the greater the risk of the U.S. being surpassed by nations that are all too eager to seize leadership of global financial markets.
Digital Asset Strategies Summit: What kind of impact will crypto have on equities as an asset class?
Dara Albright: I believe that Crypto will ultimately displace equities. Now, I am not saying that equity markets will simply disappear. However, based on technological and cultural trends, I predict that equities will ultimately evolve into a novel hybrid asset class that retains some of the characteristics of equities, but look and feel a lot more like token-type assets.
Thanks to technology, at approximately a $300 billion market cap, crypto is already by far the fastest growing asset class in the history of mankind. And with the amount of digital wallets increasing at unprecedented rates, the growth of the crypto market shows absolutely no signs of slowing down.
But it is the technology which underpins cryptocurrencies that will ultimately transform equity markets. At some point, blockchain or distributed ledger technology will drive the digitization of all conventional securities – making all securities more trackable, liquid as well as easier to clear.
But, if you look at it from a cultural standpoint, support for the displacement thesis is even stronger. There are a number of significant cultural trends that have had and continue to have monumental implications on the equities market.
Despite a 9-year bull market where the S&P 500 saw gains in excess of 300%, retail’s appetite for equities has been declining for more than a decade. According to Goldman Sachs, U.S. households have $900 billion less invested in stocks today than they did in 2007. And millennials, especially, have a particular disdain for equities. According to a recent survey by Blockchain Capital, more than 1 in 4 millennials prefer bitcoin to stocks.
With an estimated $30 trillion – the current size of the U.S. equity market – expected to imminently pass from baby boomers to millennials, millennial mindsets will soon have tremendous influence over the economy and financial markets. Thus, in order to predict how the markets will perform, it is imperative we understand how millennials see the world. And, their view is diametrically different from all previous generations.
Even more pronounced than their negative attitudes towards traditional financial institutions, are millennials’ views on economic structure overall. Millennials – who have been drivers of the “sharing economy” – have exhibited a growing distaste for ownership in general. Whether it is car-rides, living quarters, office space or even luxury watches, millennials simply prefer “access” or “sharing” to “ownership”.
As a result of this fundamental move away from ownership, the sharing economy is estimated to grow from $15 billion to $335B by 2025.
Anyone who believes that “sharing societies” will not significantly impact equities markets would be amiss. As farfetched as it may sound today, we are headed towards a future civilization where owning stock is deemed unpalatable and unnecessary while trading tokens for goods and services is valued and strongly favored.
I would also argue that flawed market structure is helping fuel the migration from traditional equities to crypto. The small cap IPO is long dead. With companies IPO-ing so late in their lifecycle, today’s most coveted emerging growth companies appreciate in the hands of venture capitalists instead of in the retirement portfolios of ordinary Americans. Even despite all of the recent legislative pushes to help small emerging growth companies go public, there isn’t enough liquidity or demand to support a viable public market for most small cap stocks. Already, during the second quarter of 2018, ICOs raised a staggering 45% of the amount raised by traditional IPOs and 31% of the amount of venture capital raised. The longer conventional equity markets remain fractured, the more likely it is that investors will look to token offerings as liquid growth alternatives.
Digital Asset Strategies Summit: Many experts believe that the institutional growth of crypto will be driven by increased regulatory certainty and custodial solutions. You have stated that other factors are at play. Can you discuss what you believe will fuel the institutional acceptance and proliferation of the cryptocurrency marketplace?
Dara Albright: Based on recent reports as well as atypical trading patterns, it is clear that institutions have begun dipping their big toe into cryptocurrency waters. Maybe even an entire foot.
Both Coinbase and Circle have recently reported an upsurge in interest from institutional clients. Circle affirmed that it experienced a 30% increase in new institutional clients in May, and it has also doubled its minimum order size due to the increased activity emanating from large-scale buyers.
Hedge fund billionaire Steven Cohen recently invested in a hedge fund targeted at crypto assets and blockchain-based companies – supporting recent comments from an employee at Morgan Stanley that cryptocurrency trading will be a “shot of adrenaline” for hedge funds. It was also just announced that the world’s largest money manager, BlackRock is setting up a working group to “study” cryptocurrencies and blockchain.
There are also reports of ample institutional money sitting on the sidelines, waiting for the right conditions. Many industry experts believe that those “right conditions” constitute regulatory clarity, institutional grade data and enterprise ready infrastructure.
I respectfully disagree.
I need only one word to describe the catalyst that will ignite a surge of institutional demand: ARBITRAGE.
Regulatory uncertainty and lack of infrastructure never precluded institutions – including BlackRock – from entering the digital/online lending space. That is because institutional investors were readily able to leverage both technology and capital in order to minimize their losses and amplify returns. Likewise, once institutions discover effective arbitrage strategies for crypto, they will flood the market.
Such strategies are imminent. In fact, I’ve been talking to crypto enthusiasts and traders who have been creating and testing very innovative and complex hedging strategies for crypto. As these strategies become rampant, institutional demand for crypto will proliferate – ultimately transforming the cryptocurrency landscape and expediting its growth.
Digital Asset Strategies Summit: What role will crypto play in retirement planning?
Dara Albright: As crypto continues to accumulate mainstream acceptance, as the industry’s ecosystem matures and especially as crypto hedging strategies become more formulated and accepted, it is inevitable that new asset allocation models will emerge with crypto playing an expanding role in modern investment portfolios – particularly in retail retirement accounts.
But, while these shifts in asset allocation models will play an important part in fueling the growth of digital assets, it is crypto’s underlying technology that will ultimately uproot the entire retirement planning industry, enabling the digital asset universe to skyrocket. The watershed moment will arrive once distributed ledger technology meets the self-directed IRA industry.
Distributed ledger technology provides the self-directed IRA industry with the capability to automate tax-deferred micro alternative asset investing. In doing so, retail investors will finally be able to seamlessly and inexpensively spread their retirement dollars across a wide array of alternative asset classes including crypto. This hi-tech self-directed IRA has the power to unlock $14 trillion of capital trapped in traditional retail retirement accounts that curtail diversification and limit returns.
This is an absolute game-changer – not only for crypto but for financial services at large.
Digital Asset Strategies Summit: Thanks Dara. We look forward to hearing more of your thoughts at the Digital Asset Strategies Summit October 16 – 17 in Dallas.