We have just witnessed a seismic shift in the US political climate regarding blockchain technology. Up until this extraordinary U-turn, the single largest obstacle holding back blockchain adoption globally was in our view the hostile U.S. regulatory regime, says Ruud Smets, CIO, Theta Capital.
Recent events have turned this dynamic upside down, potentially converting the industry’s biggest headwind into an important tailwind:
• A surprise repeal by the US Senate of anti-crypto accounting rule SAB 121 – even although this was vetoed by Biden
• Unexpected approval of ETH ETF by the SEC;
• FIT21 regulatory framework passing US Congress with broad bipartisan support;
• Biden administration “eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets … which will promote the responsible development of digital assets”;
• Trump stating he will “ensure the future of crypto and the future of bitcoin will be made in the USA” and to “support the right to self-custody”.
While this needs to be followed through by actual implementations, it is clear that we are on a path to regulatory normalization. We believe it is hard to overstate the impact of this U-turn and it makes us even more bullish on the medium-term trajectory of blockchain technology.
It is no exaggeration to say that this technology is being used to build a “True Internet Economy”. With the invention of blockchain protocols for the first time we can transfer value natively over the internet. This allows anyone globally to transact with each other without the need for a trusted intermediary.
We think about it as the logical evolution of internet technology. First, we invented how to send information over the internet, without a trusted intermediary, connecting the whole world and removing all friction. Today, over 90% of all the world’s data flows over the internet. And even more importantly, the internet has completely revolutionized the creation of data to the point where every two days we are creating the world’s total data volume of 30 years ago.
Now we have progressed to the point where this globally distributed network of computers can come to instant consensus on who owns what in the digital domain. And this enables the native movement of value over the internet. This is another massive concept. And what it will do is that it will move the vast majority of economic activity onto the internet and for the first time enable the true internet economy.
It is hard to imagine what this future will look like, just like it was hard to imagine what the first version of the internet would unlock. What we know now is that the ‘Internet of Information’ created trillions of dollars in value by making the exchange of information frictionless. We believe that making the exchange of value frictionless is an even bigger deal. The new economic activity unlocked by the ‘Internet of Value’ will revolutionize commerce to the point where in a few years daily value transfers over the internet will be a multiple of al combined value transfers today, likely generating tens of trillions of dollars in new value creation.
Just look at the first killer application of the technology, which are stablecoins. With stablecoins you are able to send dollars over the internet instantly and for less than a cent, as you don’t need a trusted intermediary. You can see this as the equivalent of email, the first killer application of the current internet. In Q1 2024 alone stablecoin volume was $6.3trn, dwarfing the combined Q1 transaction volumes of PayPal ($403.9bln), Visa ($3.2trn) and Mastercard ($1.9trn).
The next step is that nearly all financial assets will be moving onto blockchain networks, as it is cheaper and more efficient, something that BlackRock is now very vocal about. In a few years you will be paying anywhere with any asset you own. The world will be one big liquidity pool as a side effect to the internet of value. And this will only be the start. Being natively on the internet, all these assets will have superpowers as they become programmable. As an example, just think about the “unlock” to be able to use any asset as collateral in an internet wide economy.
But most of the future use cases are difficult to imagine today, very similar to the original internet. What is clear today is that unlocking the true internet economy will lead to enormous value creation and that the world once again will become much smaller.
By Ruud Smets, CIO, Theta Capital
