2021 (and the pandemic that ravaged 2020) has brought about many changes in the investment atmosphere; some of these trends will drastically shape what the next decade will look like for investors and capital markets. From a rush of retail investors entering the market due to the GameStop (GME) meme craze on Reddit, to the continued widespread adoption of cryptocurrency (Amazon and Wal-Mart are reportedly considering accepting Bitcoin [BTC]) — we have begun to witness a fundamental shift in capital markets and overall investment trends. Traditional portfolios are moving away from the classic 60% stock, 40% bond portfolio that has long been considered the gold standard as better alternatives become more and more available to retail investors. Let’s dive into some of these newer investment trends.
Cryptocurrency and NFTs
There was no way to kick this off without mentioning cryptocurrencies. Though they have been relevant for the better part of a decade now (and a blip of popularity in 2017-2018), the overall global market cap for cryptocurrency has more than doubled YTD to higher than $2T (through Q3-21, see below).
2021 brought about a revolution in cryptocurrency for a couple primary reasons. One is more widespread adoption, with some NBA teams like the Dallas Mavericks announcing that they will be accepting Dogecoin (DOGE) as an acceptable form of payment, to Tesla teasing accepting Bitcoin (BTC) as a form of payment (thought they did purchase over $1B to put on their balance sheet). Another driver in swaths of cash being poured in crypto assets include more widespread acceptance by institutions like large banks such as Morgan Stanley and JP Morgan (among others), who have largely reversed their stance on crypto as a viable long-term asset class. Though the regulatory environment is cloudy in countries like the U.S. and China, countries like El Salvador are taking a very bullish approach to Bitcoin (even deeming BTC as a legal tender). One thing is for sure — cryptocurrency is here to stay and here to stay in the headlines for the long run.
NFTs are an entirely different topic, gaining widespread attention this year for the first time. Largely heralded as “digital assets”, there are hopes that collectors of digital assets will be able pile up on these NFTs for the long run. Per Forbes’ definition, an NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos. Though built on similar technologies as cryptocurrency, these assets are somewhat different. NFT stands for non-fungible token. It’s generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends. Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain. With all this said, a recent late-summer (VISA invested in an NFT in summer 2021) resurgence in these assets will keep many eyes on this trendy asset class.
2021 saw a jump in retail investor activity in the public markets, largely related to trillions of dollars of government relief funding dispersed during the pandemic and a great media focus on the capital markets (hence the Reddit GameStop (GME) craze of early 2021). Interestingly enough, this is the highest equity allocation Americans have had since the dot-com explosion of the late 90s and early 2000s — reaching near-record levels.
Meme investing has caused both outrage and praise among the investment community, with many large institutions and hedge funds accusing this type of investing to be akin to market manipulations, whereas proponents of the movement have more of a “power to the people” attitude. Zero-fee investment platforms such as RobinHood have lowered the barrier to allow people to invest in hives and in “movements” — this not only has empowered investors (though RobinHood has recently dealt with lawsuits on “gamifying” the investment process), but also made social impact investing more of a possibility as investments in that category continue to grow (over $700B market size in 2020, with this trend accelerated in 2021) — and some of the results seem to be showing.
It will be worth monitoring whether retail investors continue to have record levels of interest and allocation within the public equities space as the pandemic resides and consumers look to spend more cash.
Crowdfunding — in the investment space — refers to the securitization of an asset (or assets) via small investments from a group [crowd] of people (usually over the internet). This has allowed everyday retail investors the luxury of investing directly into usually privatized assets like real estate, music rights, startup companies, collectible cars, farms and world-famous works of art (plus a lot more, really anything you can think of!) for less than $10 a share for some of these investments. Thanks to crowdfunding anyone could potentially have a combination of real estate, stocks, crypto, collectible sports cards and collectible cars in less than a $1,000 portfolio. Also thanks to continuously loosening regulations in the crowdfunding industry, we are seeing record numbers pile into the space. Reg CF crowdfunding raised $214.9M in 2020 (105% growth from 2019), with even more growth projected for 2021.
Statista projects a compound annual growth rate for crowdfunding as an industry of 14.7% for the next four years, and while it does not get the same attention as cryptos, many in the finance and fintech industries think that crowdfunding will be one of the defining trends of modern and post-modern finance — in fact, we feel as though apart from cryptocurrency, crowdfunding will bring the most impactful differences to retail investor’s portfolios over the next decade. Stay tuned!