In a previous post, I introduced the new Bitcoin-based crowdfunding application Swarm. But upon further reflection, I’ve realized there is an entirely different segment of investors that really ought to be paying attention as well: Wall Street. The infrastructure of Swarm was clearly designed with startups in mind, and short-term it will dominate the crowdfunding market. But given ten years, I believe Swarm could evolve into a full-fledged crypto-equity market that could rival the stock market. This will be made possible because Swarm fixes a vital flaw in the modern stock exchange system.
One of the biggest problems with the stock market is that creative entrepreneurs are forced to make a decision between maintaining full decision rights and cashing out by going public. It can be a long road to wealth without access to the kind of capital the stock market provides, and when upper management can become over-night billionaires through an IPO, it’s hard to resist the call… But when shareholders come into the equation and gain decision rights, it switches the company’s vision from being long-term profit orientated, to living quarter-by-quarter and focused on maximizing dividends. The kind of management philosophy that the stock market rewards is one that trades innovation for short-term profits. The continued innovation of companies like Apple and Google are in spite of the stock market system, not because of it! If Mark Zuckerberg could have funded Facebook through Swarm, I’m convinced he would have. It would have rewarded early investors immensely and allowed the upper management to cash out at any time by selling some of their Facebook coins. But more importantly, it would have kept Zuckerberg, the entrepreneur, with the exclusive decision rights that maximize innovation and value creation.
I’m already convinced that Swarm will be an enormously successful crowdfunding platform in the short-term. But its potential to become a full crypto-equity market that fixes a key flaw in the stock exchange is what I’m really excited about. Swarm may not end up bringing down the stock market, but it will shift the playing field in that direction. I’d bet that the tech-savvy entrepreneurs who invest through Swarm will see significantly higher rates of growth long-term than companies that go public. And ultimately, Wall Street will have a hard time turning a blind eye to Bitcoin then.