To investors,
New industries bring new problems. The market has been focused on the various ramifications of bitcoin and crypto adoption, but these conversations have historically revolved around geopolitics, nation state acceptance, and portfolio construction.
People find it easy to discuss the large, easy-to-identify ramifications. The devil is always in the details though.
One of the small problems that has become obvious over the last few years is a disconnect between legacy banks and the wealth generated in this new industry. Here is how the problem works — someone bought bitcoin early and has held the asset till today. On paper, they have “made” approximately $10 million in gains on that bitcoin position.
This same person currently has $150,000 in cash sitting in their bank account. They have no other investable assets other than their bitcoin. In this scenario, if the person wants to go to the bank and get a mortgage or a loan, the bank will measure the individual’s net worth at $150,000.
Yes, you read that right. The banks do not count bitcoin or cryptocurrency holdings towards an individual’s net worth calculation for the purposes of underwriting traditional financial products or services. This makes it difficult for people who have majority of their net worth in this new asset class to access these legacy products/services.
At the same time this is happening, an entire generation of investors are creating material wealth in the new asset class. So either the banks will have to capitulate and change their underwriting methodology, or new companies will be created to service the crypto wealth holders with various financial services.
One example of a newcomer is Meanwhile, a startup that has created the world’s first bitcoin life insurance company. They denominate everything, from their internal P&L to the policies they service, in bitcoin. Clients can contribute bitcoin and clients can get paid out from the policies in bitcoin. Not only is this a pretty good idea, but investors such as Sam Altman, Lachy Groom, Google’s Gradient Ventures, and Stillmark are all betting that the company will be very successful.
Here is a conversation that I did with Meanwhile CEO Zac Townsend recently:
I have no clue if this company will work. Startups are hard. Meanwhile appears to have momentum and I found the team to be impressive. The bigger story to me is that bitcoin-focused (and crypto-focused) financial service providers are coming to fill the gap left by the legacy banks.
If the incumbents are going to ignore the trillions of dollars in wealth that has been generated, the economic incentive is too strong for startups to stay on the sidelines. Someone is going to service these people. The question is whether the startups can quickly get big enough to compete with the large incumbents once they change their mind.
The folks at Trammel Venture Partners put out a report on bitcoin-focused venture capital trends recently. These two slides caught my attention to help quantify this development:
You can read the full report from TVP by clicking here.
New industries bring new problems. New problems bring new opportunities for new companies. This is going to be worth paying attention to as the startups and incumbents battle it out for billions of dollars in future value.
Hope you all have a great day. I’ll talk to everyone tomorrow.
-Anthony Pompliano
Zac Townsend is the Co-Founder & CEO of Meanwhile, the world’s first bitcoin denominated life insurance company.
In this conversation, we talk about traditional life insurance, protection, tax advantages, opportunities, and what Zac is building at Meanwhile using bitcoin to eliminate risk.
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The Banks Don't Want The Crypto Wealth