MACQUARIE: Cryptocurrencies could be the 21st century’s version of the Model T Ford

henry ford model t

  • Cryptocurrencies and the blockchain technology underpinning them could end up being like the 21st century’s version of the invention of the motor car, Macquarie analyst Viktor Shvets argues.
  • Shvets compares the technological advances in the crypto space to those made by Henry Ford in the early 1900s.
  • “The key that links cryptos with Henry Ford and the main difference between (say) bitcoin and tulips is that cryptocurrencies are based on sustainable and evolving technological foundations (just as cars were in the early 20th century),” he writes.

LONDON — Cryptocurrencies and the blockchain technology underpinning them could end up being like the 21st century’s version of the invention of the motor car, a new note from analysts at Australian investment bank Macquarie argues.

In the note titled “Why history matters” Macquarie’s Viktor Shvets — an analyst known for his bold, and often esoteric market commentary — compares the rise of cryptocurrencies to another technological innovation, Henry Ford’s mass production of the automobile in the early 20th century.

“What has Henry Ford to do with bitcoins?” — Shvets asks, before noting that when Ford first started to build cars there were around 2,000 different companies making a total of around 10,000 cars globally each year. 80 years later, Shvets says, “the number of car makers dropped below 50 and the industry was making over 30m vehicles.”

But what does this have to with bitcoin? Well, Shvets argues, a similar trajectory could manifest itself for cryptocurrencies.

“Today, there are over 1,000 cryptocurrencies and their combined value (depending on time of day) is ~US$ 600-800bn, or ~1% of global money in circulation,” he says, before asking whether cryptos will, within “a decade or so become the dominant force in transactions and store of value.”

Further comparisons can be made, Shvets says, in the technological advances that bitcoin and similar cryptocurrencies represent, much like Ford’s innovations with the automobile. Here he is once again (emphasis ours):

“The key that links cryptos with Henry Ford and the main difference between (say) bitcoin and tulips is that cryptocurrencies are based on sustainable and evolving technological foundations (just as cars were in the early 20th century). To argue that the blockchain is good but cryptos bad is to forget that without various forms of ledger balances (or cryptocurrencies), blockchain is an empty vessel.”

Shvets then goes on to make parallels between early stage investing in the car industry at the beginning of the 2oth century, and investing in cryptocurrencies now. Basically, he concludes, smart people will make money, those who invest indiscriminately, will not.

Here he is one final time (emphasis ours):

If one indiscriminately invested in hundreds of car makers in 1900, the chances are that one would have sustained significant losses. It was still a time for venture capitalists rather than conventional investors. However, by the 1920s, investment in the surviving automakers would have yielded considerable returns while buying buggies (even at low PERs) would have led to losses.”

“It was a similar process in the dot.com bubble. Although there were hundreds of new companies and the shape of the future was becoming clear, neither hardware, networks nor software were ready. As in the case of cars in 1900, it was a time for venture capitalists. But by 2010-15, most elements for technological progression were in place. Hence, investment in tech today is akin to buying car makers in 1920s, not speculating on start-ups in 1900.”

Earlier this week, Goldman Sachs predicted that bitcoin can be a legitimate and widespread form of money if adopted in countries and regions with less well developed monetary systems.

“The widespread use of the dollar outside the US — and full dollarization in some countries — suggests there is already demand for an internationally accepted medium of exchange and store of value,” said Goldman’s Zach Pandl and Charles Himmelberg in a note on Wednesday. 

“In those countries and corners of the financial system where the traditional services of money are inadequately supplied, bitcoin (and cryptocurrencies more generally) may offer viable alternatives.”

Shvets’ arguments about cryptocurrencies come as a major global sell-off grips the market following reports that South Korea has a bill in the works to ban cryptocurrency trading.

“South Korea’s justice minister said on Thursday the ministry is preparing a bill to ban cryptocurrency trading through its exchanges,” Reuters reported.

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