Famed venture capitalist Fred Wilson says the crypto sector is shaping up to be one of the most significant elements of the global economy.
In back-to-back blog posts, the Union Square Ventures CEO reviews 2020 and makes his economic predictions for 2021.
While Wilson laments the economic devastation that lies in the wake of the Covid-19 pandemic, he also touches on some of the sectors of the economy that have benefited from the viral disaster in the past year.
“While it is inarguably the case that 2020 was a terrible year with a global pandemic, racial strife and ugly politics in the US, and an economic downturn that is impacting exactly the people who have already been hurt the most, it was an inflection point for the tech/startup/VC/crypto sectors and a very significant one. These sectors, which had been growing in their global importance over the last twenty years, all of a sudden have emerged as the most important sectors of the global economy.”
Wilson highlights the growth in popularity of Zoom, electric vehicle companies and technology based commerce solutions as examples of this rapid shift in industry valuations.
Although Wilson believes this shift was already on the horizon, he says the Covid-19 pandemic sped up the process immensely. With many people at home and nothing to do, rich with stimulus money, tech stocks and crypto assets ballooned.
The famed investor suggests that while Tesla and Bitcoin may currently be in speculative bubbles, the attention they have garnered will help those and other rapidly growing assets achieve widespread adoption much faster than they otherwise would have.
“There is no question that crypto is in yet another speculative bubble, but like I said, it is speculative bubbles that allow emerging technologies to go mainstream and finance themselves. Odd as it may seem, a lot more people want to buy Bitcoin at $28,000 than wanted to buy it at $5,000. That’s just how things are. And it is important to understand that.”
As for Wilson’s 2021 predictions, he believes the Covid-19 pandemic will end some time in Q2, but many of the trends that became popular during quarantine, such as working from home, ordering in, and consuming media in the comfort of people’s living rooms will remain prevalent.
Additionally, Wilson says that although the major threat of the virus will be diminished, the US will be sorting out the economic repercussions of the pandemic for the next decade along with the looming climate crisis.
Wilson predicts that the government will primarily respond to those lasting economic pains by printing more fiat money and protecting increasingly irrelevant financial institutions, which will accelerate the need for and growth of the decentralized finance (DeFi) sector, highlighting the popularity of projects such as yearn.finance, Compound, and Uniswap, which is backed by Wilson’s VC firm.
“I believe that governments will respond to all of these economic challenges by continuing to print fiat money without restraint and by taxing and regulating innovative new companies to protect old and dying companies. This will lead investors to continue to allocate capital to new forms of money (crypto) and new ways of creating and financing innovation (decentralized projects and organizations).
We are already seeing that happen in the finance sector, with breakout projects in decentralized finance in 2020 like Compound, Yearn, and Uniswap (a USV funded project). We will see this approach accelerate in 2021 and expand into areas beyond the financial sector. The idea of financing and executing innovation inside of a global decentralized autonomous organization is such a powerful idea and one whose time has come.”
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