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  • Writer's pictureErik Mayo

Crypto is the New Emerging Market Equity

Recently, I was having a conversation with my partner Nishu about how the recent volatility in crypto reminded me of what I’ve frequently seen in emerging and frontier stock markets over my 20+ years working in the financial sector. The key similarities being the makeup of the market, the impact of modern news cycles, and the volatility that comes with the unknown or the novel. Crypto behaves stunningly like many past emerging markets, and it would be a dire mistake to disregard crypto markets as temporary or soluble. Instead, we can maximize profitability and minimize insecurity or panic trading by thoroughly researching these parallels and putting them to our advantage.

Market Makeup

How are emerging markets and crypto similar

Emerging market stock indices are usually dominated by financial and real estate stocks, such as banks or construction materials. In a similar vein, crypto markets are dominated by financially-oriented projects, and speculating or investing in the metaverse landscape (digital land assets and NFTs to put inside your digital house). More and more, the digital asset world is imitating the real one, and the same is true of crypto markets. Specifically, there are limited trading volumes, similar to small and mid-cap stocks, and large retail participation. Coinbase has estimated that up to 50% of the crypto market is made up of individual non-professional investors. These dynamics are similar to emerging market forces and make it seem even more volatile to the casual investor as compared to investing in large-cap stocks. That volatility can naturally make many inexperienced investors reluctant to participate, however with a bit of due diligence and research, it’s easy to break down crypto into digestible information that can help newcomers invest with more confidence.

What are the investment sectors?

Let’s dive deeper into the sectors available for digital asset investment. Many people think of crypto as falling into one of three broader categories: (1) tokens being used as easily tradable currency (often called coins), (2) investment-focused vehicles or “digital land,” and (3) the NTF’s/digital art you can put in that “digital land”. It’s important to note that these assets are not completely unconventional, but are imitating familiar concepts, such as stocks, bonds, real estate, etc. in a digital space. Think of crypto as the wild west, consider coins and digital assets to be the bank, the town square, and the general store, respectively. If you’ve invested in finance, real estate, or commerce before, you’re more prepared than most for investing in crypto.

Where are the greatest crypto opportunities?

Perhaps the greatest opportunities on the crypto front are not from the established players, but are the underpromoted innovative solutions that crypto provides in nearly every aspect of digital life. Many crypto projects are capitalizing on the unexplored facets of the digital marketplace to find solutions to real-world problems. For example, many of the companies in this emerging market focus on transforming remittances, micropayments, micro-community monetization, KYC/AML compliance, digital identity, gaming, digital rendering, cross protocol transactions, and the ability to privately share information almost instantaneously, just to name a few. The process is streamlined and allows for broader access. For instance, I can open a digital wallet on Coinbase in just a couple of minutes, versus a substantially longer timeframe of weeks at a physical branch, and that’s assuming everything went smoothly. Finding new bands becomes a lot easier with Audius, where everyday music listeners can be online talent scouts, and are able to get paid/rewarded for driving streamers in the direction of a new band. Projects like Jobchain could overtake LinkedIn as the number one hiring and networking platform, by combining identification, financial, and recruiting services all in one. The internet transformed the lives of everyone, crypto is the next step in improving digital spaces even further.

Crypto companies are not dissimilar to the small to mid-cap off-index companies that fund managers love to capitalize on to earn outsized returns (as compared to the benchmark index). However, one key difference makes crypto projects more accessible for investing is that unlike stocks, which have to meet specific criteria to get listed/traded on a centralized exchange, investors in digital assets get to participate in the growth of crypto-focused companies through a tradable token vs equity. The set-up of this is closer to the series A stage of venture investment, and participants will similarly reap the potentially large earnings from an early stage growth investment in a crypto company. However, in venture capital, investors hide behind private market valuations where the equity doesn’t trade often while investing in crypto means you’re trading in a token that is widely available, and therefore benefit from daily price transparency. While on the surface, this adds volatility to the mix with sometimes high price swings and a swiftly moving economic ecosystem, transparency means that you have more control of where you want to put your assets and a greater ability to anticipate market movements, along with greater accountability from the companies in which you invest. Additionally, as opposed to venture investing whereby your capital is locked up and unable to exit or sell, digital assets allow for the ability to redeem thereby preventing total losses. It’s scary, but doesn't anything worth doing requires a little bravery?

The Big Apple

Because crypto is so new and misunderstood, news organizations capitalize on the fear of the unknown to focus on the “clickbait” headlines; such as when investors lose large sums of money, TMZ-like scandals, and the looming threat of governmental regulations coming to ruin the party. Some investors have subsequently written off crypto as a failed market and have warned investors to back off. Did these same investors fail to invest in the Newton? Steve Jobs's first attempt at the iPhone came out in 1993, and the Newton was a clunky brick that’s best feature was its handwriting recognition software, which only worked a small percentage of the time (Apple instructional videos even blamed the faulty software on user error). That, combined with an incredibly high price tag, made it a limited-use item that Apple stopped producing just five years after its debut, and Job’s first PDA (personal digital assistant) was dead. Technology and the internet hadn’t developed to the point where his vision could be put into a product consumers wanted to buy, and Steve Job’s and his company suffered a lot of flack for making a device that was more visionary than useful. However, nine years later when the technical hardware and software specifications caught up, we got the first iPhone. Had early investors backed out of Apple because of the failure of the Newton, perhaps we never would’ve gotten to experience the iPhone, or any of the other innovations that came with it. A decade into the crypto revolution, I would posit that the infrastructure and technological security of the crypto environment is finally reaching its zenith, where those things that may have been tried and failed early on are now ready to be executed by today’s visionaries.

Just as with emerging stocks, the media enjoys capitalizing on the ignorance/mystery that surrounds crypto. Fear and greed are keys to algorithmic success and maximizing views, therefore in the good times media platforms will talk about how crypto is becoming a source of natural resource wealth, demographic dividends, and an opportunity for governments to lift people out of poverty through conventional or unconventional policies in the emerging markets. It will democratize finance and bring the tools of the rich to the little people! Like natural resource wealth, decentralized financial markets are the tide that will lift all boats and save us from inflation. Additionally, because anyone can participate, community engagement provides grassroots-level accountability and responsiveness to the changing needs of the user base. The lack of regulation also creates space for innovation, leading to projects that can start from nothing and grow into entities with multibillion dollar annual revenue streams in a matter of months. During market downturns, however, news platforms focus on corruption such as scandals involving early leaders in the movement, the potential negative impact on young or underemployed populations, or how government policies/changing regulations are creating uncertainty that can collapse the value of those assets entirely. Crypto is a speculative asset that doesn’t offer inflation protection and therefore will quickly sell off just like every other risk asset. Why invest in something you can’t touch? The cautious will tout that every company in the space is like every useless dot-bomb company, with no Amazons, Facebooks, or Googles in the space to provide a sense of stability or endurance. But without vision, emerging markets would never exist and would certainly never become established sources of wealth growth. Innovation requires believing in the unknown, and investing in an idea. An apple falling out of a tree can feel like the end of the world to one person, or the start of a revelation to another.

Deregulated, Decentralized, by Design.

One of the biggest advantages of crypto is that it is an unknown frontier in the financial world; holding trillions in value, easily tradable across the globe in digital exchanges, and burdened by very little regulation compared to traditional assets/exchanges. In recent days following the collapse of Luna, articles have abounded about how the government is going to come in to regulate crypto, which would slow down the market and centralize it, thus limiting potential investor gains. We were already beginning to see this in last year’s decisions to let banks hold and use stable coins for payments.

Of course, regulation is coming. Regulation is inevitable and an important part of any largely held asset or innovative technology. But changing regulations is a characteristic of an emerging market, and is a good indicator of where future value is being created. In my days at Stanford and Fintan, I would actively look for these types of opportunities. For example, a change in the bankruptcy law led me to look more actively at credit in Brazil and understand that instead of limiting my potential returns, regulations can also help protect my assets from exploitation while a market establishes itself. Likewise, volatility in a market is not a sign of its temporality, but rather a sign of it working hard to establish itself as a long-term asset. Regulation provides a framework for stability and transparency. Ultimately de-risking the asset class from fraud to providing more transparency. Thereby, allowing more established and institutional investors to come into the marketplace. We are already seeing this from banks, corporates, emerging market countries and traditional investors.

Regulatory change creates investment opportunity

As regulations evolve in unregulated spaces, barriers to entry are created for new entrants, usually due to increased compliance mandates. In crypto, I laugh a little when people worry about regulation. Would the government have allowed for banks to be able to use stablecoins for payments if they were going to outlaw all crypto? No. Would a digital dollar greatly change the landscape and lead to some winners and some losers in the ecosystem? Of Course! That’s why we diversify our investment. This is precisely what we saw when there was fear surrounding over regulation of private funds (hedge funds, private equity and venture funds). Winners and losers emerged as regulations evolved yet assets under management have continued to grow. Instead of being driven by a fear of instability, we need to focus on the opportunities these potential changes will create for new and existing businesses. One of the best ways to do this is to focus on management teams with experience navigating regulatory uncertainty. I remember sizing up investments during the financial crisis of 2008 with investment managers who took certain teams off of emerging market trading desks and had them trade Greek and European assets, because they were familiar with currency crises and policy uncertainty, unlike their developed market peers. Similarly, we need to start viewing the purported weaknesses of crypto, such as its deregulated and decentralized design, as its major value.


I’ve said a lot in the above, but let me try and bring it all together. I’ve spent most of my career in the emerging markets looking for opportunities that have few competitors and high barriers to entry, because easy money doesn’t exist, and the best investments require a lot of due diligence.

If I was looking at crypto venture, I would be focusing on “off index” opportunities outside the financial services sector, and digital land to round out my portfolio. Specifically, I’d be looking at crypto projects that have been affected by fear-driven news cycles, leading to depressed prices but not necessarily lack of value. Long-term investments that interest me are projects that are solving specific problems that will become new category killers in the coming years, such as digital platforms that will change the way we view communication, transportation, or banking.

Of course, there will be regulatory changes, and investing in crypto requires careful consideration of shifts in government policy. This can be done with management teams that actively navigate inside a regulated framework while taking advantage of the open environment they have today. But that being said, crypto investments are still very much approachable and a highly valuable opportunity for investors of all shapes and sizes. Regulation also brings comfort to a wider investor base and ultimately deeper and richer markets. Much in the same way that the early days of the internet sought to democratize access to information for all who used it, crypto looks to be a way in which those who are interested in technology will be able to have an equal voice in shaping the direction and innovation of digital value for years to come.

This all fits with how I’ve been investing for years from my early days at Stanford. So, my advice for everyone who says, I just don’t get crypto, is to think of it like you would an emerging market. Early investors benefit from overall growth and being first movers. Not everything is a currency or financial services firm. There will be large amounts of volatility driven by sentiment and regulation. That doesn’t mean the opportunity should be ignored, or that large amounts of money cannot be made, but that education is required, and an active strategy is much more likely to be successful than a passive one. If this is the wild west, then it’s time to grab the bull by the horns.


This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Terra Incognita has no duty or obligation to update the information contained herein. Further, Terra Incognita makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.

This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Terra incognita Capital, LLC (“Terra Incognita”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

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