I hope you’ve been enjoying this week’s issues.
On Wednesday, we discussed the Winklevoss twins (The guys who allegedly came up with the Facebook concept first). They’ve been very active in the cryptocurrency scene…and have recently launched their own ‘stable cryptocurrency’ — the Gemini Dollar.
It could help bridge the wild west of the crypto world with the licensed, regulated financial sector.
And then yesterday, we broke down the concepts behind bitcoin and blockchain. If you’ve been confused by the terminology, you’re not alone. I consider myself well-read in the crypto space and I’m constantly disappointed by how terribly innovators communicate their ideas.
They often resort to ‘brain-dumps’ of information, typically cloaked behind industry jargon.
Our job, here at Money Morning New Zealand, is to help decode what they’re saying, relay it to you, and hopefully help you make better financial decisions.
Today, I’m excited to discuss what I believe to be the most valuable opportunity to rise out of the crypto scene, but before I do, we need to talk about Fonterra.
If you’re not from New Zealand, you may have never heard of it.
It’s a massive dairy conglomerate and New Zealand’s biggest company. It’s operated as a co-op, owned by its roughly 10,500 farmers. But investors can tap into the company through a special Fonterra Shareholder’s Fund.
And the company is HUGE. It’s responsible for 30% of the world’s dairy exports and has revenue exceeding NZ$17 billion. Talk about a serious cash cow…
And for New Zealand’s market, Fonterra represents one of the most important pillars…that is, until now.
It announced an annual loss of $196 million this morning — the first annual loss in its history.
For farmers, this could be disastrous. Thousands of dollars in revenue lost. A drought in one of New Zealand’s staple industries.
But for analysts, it’s a real head-scratcher. By most accounts, China was supposed to house the next big dairy boom. A growing middle-class would demand more higher-quality milk-products…and Fonterra was primed to deliver. The company even made a significant investment into Chinese producer, Beingmate, in preparation for the demand wave. But it never came.
Instead, the company had to write off over $400 million on that investment alone.
How could analysts be so wrong? And what happened to those potential customers?
An investigation for an upcoming issue. Today, let’s get back to bitcoin, blockchain, and your big opportunity.
Arcades and tokens
Picture this: You’re eight years old and you’re at an arcade. And the machines in this arcade only take tokens.
So you walk up to the token-dispensing machine, stick in your $10 note, and a bunch of little silver coins pour out into the bin at the bottom.
You scoop them up into your pocket and run off to play your first game of Tetris.
What has just happened is that you’ve ‘tokenised’ your money. You’ve taken $10 in currency value and transformed it into 10 dollars’ worth of tokens.
You’re no worse off. You’ve still got 10 dollars’ worth of value. If anything, you’re now better off in the arcade because you’re now able to play the games.
Now, here’s where it gets really crazy. Imagine that token-dispensing machine could take stuff other than money and turn it into tokens.
Let’s say there’s a lever on the side of the machine. Give it a couple pumps and it spits out a few tokens.
That’s ‘tokenising’ your physical effort.
Or what if the machine has an offer where if you type in your email address, it gives you 20 tokens.
That’s ‘tokenising’ your data, your email address.
This is ‘tokenisation’ and a ‘token economy’.
In other words, you’re taking something and magically transforming it into token form.
Tokens for investors
One of the most ambitious and exciting ways that tokens are being used is through its crowdfunding apparatus.
Let’s say there’s a new arcade coming to town. They’re a little short on cash to build it so they offer you a deal — give us $10 now and we’ll give you a hundred tokens that you can use when we open.
You’re a smart kid, so you ask, ‘Why should I?’
The arcade owners tell you that when the arcade opens, the token-dispensing machine will only give 50 tokens for $10.
Your mind starts whirring. You figure it’s a little risky, but think how many Tetris games 100 tokens will get you. So, you take the deal.
You’ve just ‘tokenised’ your money and helped crowdfund a new venture. You’ve just engaged in one of the most cutting-edge investing strategies available.
Pretty good for an eight-year-old.
Tether: an intriguing investment
In reality, there are heaps of ‘arcades’ out there. They’re offering their own special tokens in return for the ability to own or use their product once it’s finished.
With a market cap of $2.7 billion, the largest and most popular by far is Tether. If you have a good memory, you’ll remember that we mentioned Tether on Wednesday when discussing so-called ‘stable’ currencies.
Tether tokens are deemed ‘stable’ by some because they’re backed by actual, fiat money. And the firm that created Tether publishes a daily record of all the reserve holdings. And they often have the records audited.
And it’s useful because one of Tether’s tokens, i.e. a tether, can be used to buy or sell other cryptos…or just exist as an investment.
It’s so popular because it’s tied to real dollars…and because it’s so heavily invested in top-tier compliance and licensing.
Check out their site here.
Editor, Money Morning New Zealand