How to get started investing in crypto and other digital assets and the best apps to use, according… | by Martinskosa

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How to get started investing in crypto and other digital assets and the best apps to use, according to a Web3 expert

Alt Goes Mainstream is a newsletter about cryptocurrencies and alternative assets by Web3 investor Michael Sidgmore. To get it in your inbox each week, you can sign up here.

He breaks down the companies that help new investors start investing in crypto or other alt assets.

Gen Z is looking to invest in more than just stocks from cryptocurrency to trading cards.

The institutions that can help new investors bet on these assets are winning them over.

A tweet by institutional investor Patrick O’Shaughnessy about on-ramps has got my mind turning: On-ramps are those companies and institutions that allow everyday investors to easily diversify their portfolio by allowing access to new and alternative assets. Start trading today

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A few companies in the financial services space have been in the limelight recently in large part because they are on-ramps, the most noteworthy being Coinbase. Coinbase created the on-ramp for investors to access the cryptoeconomy as an investable asset class. Coinbase CEO Brian Armstrong references this concept directly in his letter in the Coinbase S-1. By creating this on-ramp, Coinbase built a $100 billion business (at time of IPO) with more retail brokerage account customers than Fidelity, Schwab, and TD Ameritrade.

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Companies that create on-ramps to different asset classes embody mainstreaming in retail financial services.

There is something incredibly profound and underrated about creating an on-ramp to new asset classes. Even moreso in an era where younger investors — Millennials and Gen Zs — view financial assets and investing in a different light than prior generations, and in an era where fractionalization enables investors to access assets that may have previously been unavailable to the individual investor.

Younger investors view culture as an asset class

Whether it’s sneakers, sports cards, collectibles, NFTs and NBA Top Shot, and crypto, investors want to invest into things that they can identify with as their interests, something that Leore Avidar of Alt eloquently describes as “interest-based investing.”

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As a result of “interest-based investing,” we may see entirely new consumer financial services firms emerge. For younger investors, the first relationship they may have with an investment or financial services firm could be with one of these newersports cards, collectibles, NFTs and NBA Top Shot, and crypto, investors want to invest into things that they can identify with as their interests, something that Leore Avidar of Alt eloquently describes as “interest-based investing.”

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That is Why companies that create on-ramps to new asset classes may come to define the future of retail financial services

On-ramps bring new investors to an asset class. In their S-1, Coinbase states that they are the “default starting place for new user journeys into the cryptoeconomy.” Coinbase “reduce[s] the complexity of crypto by infusing usability at the core of each of [their] products,” which enables the mainstreaming of the crypto spaceParticipation in the stock market is still not a reality for all Americans. Just 55% of Americans own stocks directly or through a mutual fund or in an IRA account, according to a Gallup poll from April 2020. The latest available government data, via the Federal Reserve in 2016, illustrates that only a small percentage of American families, 14%, are directly invested in individual stocks. Moreover, just 10% of households controlled 84% of the total value of these stocks.

On-ramps to new asset classes may change the demographics of asset ownership

Coinbase created this on-ramp for crypto investors in 2012.

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Some of those individual investors who were early crypto adopters may now have more money in their Coinbase brokerage account than they do in their bank accounts.

This creates a very powerful dynamic for Coinbase.

They have both the assets and the trust of investors who were early adopters, not to mention the recent wave of millions of people who created Coinbase accounts to participate in the current upswing in crypto markets.

Companies that build on-ramps in other asset classes have a similar opportunity to Coinbase. As early Coinbase investor and Boost VC founder Adam Draper has said many times before, “gateways are super valuable businesses.”

Here’s some of the big on-ramp companies across different asset classes

Equities — Incumbents like Schwab, Fidelity, TD and startups like Robinhood, Public, Stash, Trade Republic.

Brokerage firms, both incumbents and upstarts, have created the on-ramp to enable more Americans to access public equity markets. Irrespective of your views on payment for order flow (PFOF), zero-commission retail brokerage has brought significantly more individuals into the market as investors.

We are also starting to see innovations in financial education, with companies like Commonstock, that are trying to educate investors about how to invest. This is a welcome — and necessary — addition to retail financial services.

Companies like Stash are also enabling investors to invest long-term into the stock market rather than trade, leveraging innovations in fractionalization of equities to enable more market participants at lower investment minimums. This is a good thing as well.

Early-stage private companies — AngelList, Republic.

Until recently, many investors did not have access to investing inearly-stage private companies. Investment platforms like AngelList changed that for accredited investors. They enabled accredited investors to access early-stage private company investments in their SPVs alongside top-tier venture capital funds. Republic has done the same for non-accredited investors, lowering the investment minimum and bringing in all investors irrespective of their accreditation status.

They have created an on-ramp to investing into early-stage private companies, where significant value creation can occur in the more successful private companies.

Late-stage private companies — Carta, Forge.

Carta and Forge have a huge opportunity in front of them. By creating mechanisms for employees to enjoy greater liquidity in their startup’s equity, they have a chance to capture those employees as customers. They can help those employees diversify their potentially valuable single-stock position across a number of valuable later-stage private companies. Like Coinbase, they may serve as the first place where employees have a meaningful financial relationship due to the liquidity provided by their single-stock position.

Forge, for example, has created hundreds of thousands of new accredited investors by virtue of enabling employees, who are sellers of private company stock, to generate liquidity on their platform. Those investors are then investing that capital into other assets on the Forge platform, creating a powerful closed loop economy that keeps assets in their ecosystem.

Alternative investment funds — iCapital.

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Private equity funds and hedge funds have previously been the domain of the institutional investor or the ultra-wealthy family office. This is in large part due to regulatory constraints that make it possible for only qualified purchasers ($5 million net worth and above threshold) and institutions to allocate to private equity funds and hedge funds. There are a number of investment platforms, iCapital included, that are structuring products for the accredited investor to access private equity funds at lower minimums. Provided that these funds are of the same quality as those provided to an institutional investor, like a pension or endowment, this is a positive development for the retail investor.

Wouldn’t it be interesting if every American could have exposure to private equity via their 401k or IRA?

Infrastructure — AltoIRA, Rocket Dollar.

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More Americans have retirement accounts than taxable investment accounts. IRAs represent $11 of the $20 trillion in total retirement assets in the US. Self-directed IRAs can be an excellent investment structure to invest into alts — they can hold illiquid assets with long-term return generating potential, enjoy meaningful tax benefits and early withdrawals are penalized.

Companies like AltoIRA and Rocket Dollar are creating the infrastructure layer to enable investors to invest into alts via their IRAs. They have partnered with platforms to unlock the ability for consumers to invest into alt assets in a tax-efficient way, creating another on-ramp for investors to put assets into alts.

Crypto — Coinbase, Bitso, Shakepay, Sorare, Dapper Labs / NBA Top Shot, CoinList.

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