This post is inspired by Ray Dalio's book, Principles for Dealing with The Changing World Order.
In page 222 of his book, Ray shared the concept of financial wealth which is different from other types of wealth. To the un-initated, this is confusing, wealth is wealth right? What is non-financial wealth anyways? But there are differences. Importantly, Ray implored us to think about financial wealth, real wealth and in the digital world in the future, digital wealth.
Today, we are wealthy mostly just in terms of financial wealth, money in the bank, stocks, bonds, insurance, fixed deposits. This is actually different from real wealth - like owning a house, car, physical gold and silver, watches, jewellery etc. Financial wealth, including cash, are just "promises" created by human beings so that we can transact more efficiently.
Financial wealth was created around 1350 in Italy (maybe earlier in China) and for most of human civilization, people value real wealth more than financial wealth. Imagine you are a wealthy merchant in the 1500s, if you have the equivalent of a billion dollars back then, did you put in all in the bank and wear T-shirts and jeans? No, you buy a castle, employ a million slaves to serve you, own horses and what not and flaunt. Well, we still flaunt. But real wealth exists in the physical world, they are mostly real assets.
Financial wealth is not real wealth. When big regime changes (like during wars and/or revolutions), financial wealth may not mean much because it's usually destroyed. According to Ray, over the long history of human civilization, financial wealth is nullified, confiscated and essentially disappears and rich people either become poor after losing everything or are killed.
Well that's story for another day. Today, we also need to talk about digital wealth.
18-24 months ago, huge bubbles were formed in the Metaverse. Virtual real estate are sold for millions of dollars or more and NFTs can be worth more than auction-able physical art. It all started with Bitcoin. Then came Ethereum, tokens and big companies like Coinbase and Gemini becoming the gatekeepers of digital wealth. While FTX debacle now calls to question is digital wealth real, the alternative is that we might look back and see this as the start of the age of digital wealth. If the era of financial wealth comes to an end, we either go back to real wealth or we might shift to digital wealth.
Real estate has a mantra: location, location, location. But in the virtual realm, there is no location, no scarcity, so essential virtual land can be created at will. Will virtual Orchard Road, Ginza or Times Square be worth anything? Food for thought. NFT has its own story as well. If you own the original Mona Lisa in the era of real wealth, it is worth something. So how does that translate for Michael Jordan's MVP moment as NFT or the Nyan Cat?
I have no answers, but it might be worthwhile to start to think about owning some digital wealth, which is different from financial or real wealth and might be a good diversifier. Albeit 99% may turn out to be worthless, as FTX has shown us. My original short thesis on Bitcoin in the early days was correct, it grew into a big bubble and popped. It sucked in so much financial institutional money because there is some truth in Bitcoin replacing gold. Then, everything crashed in 2022 but it is still $17,000 today! If enough people believe in it in the next 10, 20, 30 years, it will then become the source and the origin of digital wealth. It might just be a good bet to buy a little today.
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