Community Based Investing – A Paradigm Shift For The Markets
Millions of people worldwide are seeking to break free from the old way of investing. Today, investors have charts, real-time news, communities and commission-free trading platforms guiding their financial decisions and behaviors. The average person no longer requires the permission of an advisor or broker to participate in the markets.
Interference from broker-dealer intermediaries is one remaining hurdle, and millions of investors seeking a better alternative are turning to crypto markets.
Crypto markets have democratized information sharing, provided open, 24/7/365 access to investments, enabled new opportunities for startup investing and allowed stakeholders a vote in the direction of innovative companies.
We sat down with Jeremy Welch, Kraken’s Chief Product Officer, to analyze many of the latest market developments and learn what is so compelling about crypto markets.
In this interview, we think you’ll find some unique insights into community based investing, the influences of entrepreneur investors and what advantages crypto markets provide to consumers.
Jeremy, many narratives and conspiracy theories with stocks like GameStop, AMC, Bed Bath & Beyond emerged after their short squeezes – do you give credence to any of them?
There is a line of thinking that what we’re seeing is ‘Main Street’ traders changing the game versus ‘Wall Street’ suits flexing their muscle – I think that probably holds some weight. It’s interesting to think of a financial market as a composite of different communities. There’s something unique about crypto as a community of people that have bought into a currency or an idea.
The classic view of a shareholder – someone who buys stock in a company because they believe in the business – definitely supports some of the behavior that we’re seeing. A lot of those traders believe in, or identify, with those companies. In a sense just talking about shareholder rights reminds me of the communities that develop around crypto projects. In the case of crypto we’ve actually seen some of this community work happen.
Specifically with bitcoin, just drill down to Satoshi himself embedding the London Times article about the Great Financial Crisis in the Genesis block. It was an ultimate statement saying “I have not been a shareholder and stakeholder in this system. I know myself and others like me were not being factored in here.” I think that for Satoshi, bitcoin was a way to build a community and build a system that aligns more with a certain ideal.
The unique thing about GameStop is you have this group of customers – Millennial and Gen Z customers – that believe in GameStop as a company because they were purchasers of video games. These customers understood that market. They have positive associations with that company. Although buying games has largely shifted to digital, the sentiment is strong.
Plenty of people who purchased shares, probably aren’t regular customers of GameStop, but have an affinity with the function that they play in the gaming community. AMC is another one. People go to movies and the idea that these companies are associated with positive emotional experiences is really unique. For some of the buyers, I think the statement they were making was a little bit of a revolt, it was the community saying, “You know, why are you using these financial engineering techniques against a company that I have positive associations with?”
It became personal.
We have seen a surge in trading and investing activity since 2020 – especially since the COVID pandemic. Many have been gravitating toward digital asset exchanges like Kraken. What is it about the digital assets markets that sets them apart from traditional markets?
One, the markets are 24/7/365.
Two, with cryptocurrencies, you’re talking about literal software that these tokens are tied to. In general, we are talking about cryptocurrencies, but there are other types of digital assets. There are NFTs and there are other types of in-game items. People are used to the digital world now. Just like you used to trade an MP3 file, it is going to become more commonplace. The interesting thing about NFTs is that they are unique. With an MP3 you can just copy and paste it, but with NFTs there will be some unique values that you can trade with them going forward.
Three, crypto gives someone a way to make that same statement that GameStop traders are making. Crypto gives you the power to say to the establishment, “I am taking control of my finances.” You can take on the responsibility of self-custody. Your finances can be fully private. Or you can interact with the founders of a company and protocol and help them shape the future of a business that can impact your community. Crypto gives you choices that have been eroded over time.
Look at DOGE, since inception it has been viewed as a meme coin. Now, for whatever their motivation, groups of people get together through social media and decide it has a value. At Kraken, we have seen a significant uptick in DOGE trading and client sign ups to buy Dogecoin on our platform since the beginning of the year, specifically in the past few weeks.
What advantages does a person have investing in crypto markets? What personal freedoms are they afforded?
I think an advantage crypto traders and investors have is the communities normally available on Twitter. On GitHub, you can find the resources, the code and the write up related to a project. Those things are game changers for the average investor in terms of saving time and accessibility.
With traditional markets, you can find a lot of the information about a business but you have to dig through pages of reports.
When you hold shares in an equity market, you have equity in the company and that does give you some shareholder rights. In contrast, whenever you hold a crypto asset, you can be the custodian. That is totally unique in terms of freedom to control and really own that asset.
I think the biggest difference is in ownership. With a cryptocurrency, you can directly own it when you purchase on an exchange. When you own shares, your broker or a clearing house most often holds the stock certificates. With voting rights, you get direct interaction with a cryptocurrency. With shares in a company, let’s keep it simple and say things are more complicated.
What do you make of influencers like Elon Musk and Chamath Palihapitiya championing crypto assets?
Whenever you look at Wall Street and the blow-up of the 2008 financial crisis, some actors did things that were intentional and malicious. They knew things were wrong and nobody went to jail. Many investors are now extremely skeptical about Wall Street and financial games.
I think Elon and Chamath are recognizing that the future of wealth is headed in this direction, and they’re also recognizing the kind of injustices that have happened in the past. They do want to enable the broader community and I think that’s a good thing — so long as it stays in that vein and they’re talking about the benefits.
I think about my own journey and what I said when I joined Kraken. The internet needs a new business model. It needs an updated and more resilient infrastructure. Bitcoin and other cryptocurrencies are providing just that.
Thank you, Jeremy!