If we were to name the most successful companies of the last few decades, it would be hard to argue with a list of Apple, Google, Facebook, and Amazon. At first glance, it is easy to conclude those are all tech companies that have profited handsomely from the fact we live in an ever-increasing digital world. While that is true, it is a rudimentary take. Bagholder thinks that understanding EXACTLY what these companies have done to become so successful will provide a leg-up for investors looking to spot the next big winner.
Let’s start with Apple. In short, Apple has been able to digitalize a litany of real-world products - and, in the process, steal the market share (and corresponding income) of the companies who made those products. Texas Instrument’s calculator, Sanyo’s boom-box, Rand McNally’s map, and Kodak’s camera are just some of the examples of the companies & markets Apple has disrupted by turning those products into digital world applications on a single hand-held device.
Google has managed to digitalize information. In Bag’s youth, researching anything meant heading down to the local library. Once there, thumbing through encyclopedias, working the Dewey Decimal system, and fighting the microfilm machine was very much the norm. Google has digitalized all of that. We now have more information at our fingertips than can be found in the Library of Congress - and it’s not even close.
Facebook has digitalized relationships. We no longer have to wait for the once-a-year barbecue with our distant cousins to catch up on their lives. With just a few mouse clicks, we can literally see a photo of who Cousin Eddie is dating, where they went for dinner, and, in some cases, sadly, what that dinner looked like when served. To Bag, that all seems like minutia, but there is no arguing that Facebook has carved out a niche in the digital world catering to a huge swath of the population starving for personal connection.
Amazon has digitalized entire shopping malls. No more afternoons spent wandering from store to store looking for precisely the right coffeemaker. Whether we like it or not, brick-and-mortar stores are going the way of the dinosaur because they cannot compete with the efficiencies (and the larger markets) the digital world offers. Amazon recognizes this fact, while their brick-and-mortar competitors — who don’t — are one by one, heading to bankruptcy court.
The common thread in the success of all these companies is their ability to take real-world things and move them to the digital world. The real questions for investors going forward are: what is the next real-world thing to get digitalized, who will do it, and how can money be made from it? Fortunately for the readers of today’s column, Bag will provide the answers to those questions….
But first, Bag wants you to imagine owning a ten-million-dollar Picasso. Thanks to increasing demand and a scarce, finite supply, Picassos are highly likely to continue outperforming inflation. The wealthy are aware of this fact, which is why they own them and rarely bring them to market. While it would be nice to have one of those hanging on a wall, it comes with some significant opportunity costs, in that you are out the use of the millions the Picasso would fetch if sold. This means that every time wifey wants the latest Louis Vuitton purse, you must go out of pocket. Sure, banks will loan against the painting - but that comes with an “interest” bill. And if there is one thing wealthy people absolutely despise, it is paying interest.
For the Uber-wealthy, the problem at hand is how to maintain control of the asset to capture the appreciation, not pay any interest, and foster some marital bliss by getting wifey her grossly overpriced handbag, all without reaching into their own pocket. The solution to this problem is the digitalization of assets, or in the parlance of our times - TOKENIZATION.
Why borrow 5 million from a bank on that Picasso when you can float 10 million tokens at a buck each, keep 5 million for yourself, and sell the remainder to the public? You keep majority control of the asset, it remains on your wall, you pay no interest, and Wifey gets her new purse. It is similar to the idea of taking a company public, except there is no need to hand Goldman Sachs a 20% slice of the proceeds in exchange for going public. You can effectively control the market by keeping 5 million tokens for yourself. If the public bids the tokens too high - you flood the market with more of your tokens. If the bid falls too low, you can buy them up on the cheap. For all practical purposes, you are the metaphorical elephant in a bathtub - the water level is whatever you want it to be.
The only reason asset tokenization hasn’t been done already is that the primary requirement is an open, peer-to-peer, immutable ledger on a decentralized blockchain. The “Open” part means anyone anywhere has access. The “peer-to-peer” part cuts out the need for the Goldmans of the world. The “Immutable ledger” part means there is a public record that can’t be altered to show exactly who owns what. The “Decentralized” part means no single points of failure and, thus, no fraud.
Prior to the advent of a decentralized blockchain, the best option for the wealthy was to borrow against their assets and pay interest. Tokenization will eliminate the need to borrow, and the interest payments that come with it. While the Apples, Facebooks, Googles & Amazons have made some serious scratch digitalizing calculators, relationships, libraries, and shopping malls - the sheer size of asset markets will dwarf them all. Real estate, fine art, collectibles, and even stocks & bonds will all be tokenized. Bag can say this with certainty, because the rich and powerful, also known as the ruling class, are highly incentivized to tokenize everything.
When you start looking at ways to capitalize on the coming wave of tokenization, it makes sense to consider investing in a computer network specifically designed to be open, peer-to-peer, immutable, and decentralized. That network goes by the name of Bitcoin. There is one caveat, though. Tokenization requires a few things Bitcoin cannot offer by itself, namely the ability to process thousands of transactions per second, at an extremely low cost, with massive amounts of blockspace.
In short, the properties Bitcoin offers are not enough. The Bitcoin Network will need to work in conjunction with another blockchain that offers the properties Bitcoin is lacking. When you start to consider alternative blockchains in terms of metrics like monthly active users, transactions per second, number of developers, daily transactions, and lowest cost - there is one network atop all 5 of those lists: Solana.
A host of traditional financial companies are already piling into Solana. Visa just announced they are moving their processing network onto the Solana blockchain. Paypal was already there. As evidenced by Bag’s earlier column (Monopoly), the network is ALWAYS far more valuable than the products that use the network. As this is written, the market cap of Visa is 8x that of Solana. In Bag’s opinion, it is only a matter of time until Solana is 8x that of Visa. Assuming Visa maintains its current market cap, Solana is a 60-bagger from here.
Like Bitcoin, Physical Silver, and Tesla - Solana offers some breathtaking asymmetry…. Hit the like button if you agree….