An Op-Ed by Dara Albright originally posted on March 18, 2020 on EisnerAmper’s Center for Transformation.
A few weeks ago, I was in New York City for multiple cryptoasset events. I shook hands with lots of industry colleagues as we enthusiastically discussed how digital finance was changing the world.
Optimism was everywhere.
Even the topic of my presentation, how blockchain technology could fuel another roaring twenties, conveyed sanguinity.
Less than two weeks later the markets tumbled, travel plans were cancelled, and hand sanitizing products disappeared off the shelves of retail outlets.
In just three weeks, the world had indeed changed – just not in the way that anyone had foreseen when we were toasting the new year.
In the blink of an eye, panic replaced hopefulness.
This isn’t an extraordinary phenomenon. Mankind has been here before – many, many times.
On September 11, 2001, I was living in NYC, just one block away from the UN. I was on the phone with my mom watching the live coverage on the news, when she screamed, “The Pentagon was just hit. Get out of your apartment now!” In that moment, I remember having this sinking feeling that the world was ending.
That same sinking feeling reappeared, seven years later, when the headlines read that Lehman Brothers filed for bankruptcy.
As we all know, the world didn’t end in 2001 or in 2008. Nor did it end in 1987, 1929 or in 1918.
Instead, the earth just kept spinning and time kept marching on – notwithstanding market crashes, terrorist attacks, wars, and deadly outbreaks. With each calamity, the world had changed – and in many ways, improved.
Innovation flourished. New companies emerged. Economies grew. And stock markets reached unprecedented new highs.
While I take comfort in the positive outcomes throughout history, it’s hard to remain calm when an entire planet is stockpiling toilet paper.
Lately, every time I turn on the news or catch an alert on my phone that evokes that sinking sensation, I try to remind myself that change is simply defined as “different” – not “worse.”
Our world is not ending. Once again, it is evolving. Much like how social media, smart phones and medical cures emerged out of the ashes of 9/11, and blockchain technology arose out the 2008 financial meltdown, progress shall stem from the novel coronavirus.
Below is a possible glimpse into a post-corona world and how this sudden global disruptor might ultimately change – even enhance – humanity.
1. The magnitude of diversification will be realized
The magnitude of diversification cannot be overstated. For decades, investors have been recognizing the value of portfolio diversification. In the aftermath of COVID-19, businesses will come to realize that diversification strategies are just as essential when it comes to raising capital and manufacturing goods.
COVID-19 has sent shock waves through the financial markets, with the DJIA now trading more than 35% off its all-time high, hit less than 5 weeks ago. While the actual threat of COVID-19 remains unknown, the fear is exceedingly real. As markets tumble, no asset class is left unscathed. Even both gold and bitcoin are down – two asset classes previously thought to be negatively correlated to equity markets.
Because the financial world is so interconnected, non-correlated assets have become somewhat of a fallacy – something COVID-19 brought to light. The fact is, when stock markets are plummeting, traders need to cover losses by liquidating unrelated positions; thus, ensuring the correlation of all asset classes.
There is only one way to lessen the correlation, and that is to increase investment options. Some innovators have started looking to “asset tokenization” as that solution.
Asset tokenization is essentially the process of converting all kinds of physical assets (such as real estate, art, wine, cars) into digital assets on a blockchain. In doing so, it facilitates the fractional ownership of previously illiquid and pricey assets, producing an endlessly proliferating universe of micro-investment options.
Asset tokenization also fosters a lesser addressed – but equally important – form of diversification called “investor-base diversification.” Investor-base diversification is a process used by issuers to help mitigate price volatility by possessing vast and diverse cap tables.
As portfolios and investor bases grow ever more diversified, asset classes overall may become increasingly less correlated with one another, making portfolio allocation models that much more effective. The broader macroeconomic benefits of such diversification employments will include better products, stronger businesses, more jobs, and greater confidence in the capital markets.
Although asset tokenization is currently in its infancy and has ways to go before it begins propagating the investment universe, COVID-19 could be the catalyst that jumpstarts its adoption.
Additionally, the novel coronavirus has highlighted the necessity for manufacturers to ensure that their suppliers are geographically diversified.
The capital markets’ initial reaction was not to the virus itself, but rather to the economic implications of the supply-chain disruption emanating out of China. In addition to threatening China-based supply chains for numerous industries, COVID-19 has exposed U.S. dependency on China for its most essential needs including medication and medical devices. In response, Senator Josh Hawley (R., Mo.) has already announced the introduction of a bill that would diversify the U.S. medical supply chain in order to reduce reliance on Chinese products.
Because of its effectiveness in mitigating all types of risk, diversification could be one of the most notable themes to dominate in a post-corona world.
2. The World Will Transition to Digital Money
If you haven’t already heard, coins and bills – no matter the nation that mints them – are dirty. In fact, they are literally swarming with infectious germs. Fearing that cash was spreading COVID-19, the World Health Organization (WHO) began recommending that people wash their hands after handling monies, and especially before eating. The WHO went so far as to suggest that people use contactless payments instead.
Even China recently committed to destroying and disinfecting cash from hospitals, buses, and markets in regions severely affected by the coronavirus.
According to Chris Burniske and Jack Tatar, co-authors of the best-selling book, Cryptoassets, “currency void of any physical representation will inevitably be the next phase of monetary evolution.” We’ve begun to witness this evolution in real time as nations around the globe have recently started exploring the digitization of their currency. But, when historians look back to 2020, they may find that it was indeed COVID-19 that expedited the global transition to digital money.
3. Virtual Conferences and Meetings Will Fundamentally Transform Business
People sometimes forget how fortunate we are to live in this technologically advanced era. Business doesn’t need to cease simply because of the need to physically distance ourselves from one another.
Unlike during pandemics of previous generations, businesses today have the luxury of using technology to keep communications flowing and commerce moving.
In the past few weeks, virtual conferences and meetings have exploded. In fact, Zoom Video Communications, Inc. (NASDAQ: ZM), provider of video meetings, voice, webinars, and chat across desktops, phones, mobile devices, and conference room systems, is trading up over 15% since the market selloff began a few weeks ago.
Don’t expect this to be a short-lived phenomenon either. Particularly as virtual meeting technology becomes more sophisticated, people are going to grow more accustomed to online engagement. Heck, Gen-Zers are already so used to communicating virtually, that they do so even when they are standing right next to the people with whom they are socializing!
For companies raising capital, virtual deal rooms and online roadshows were previously perceived as great add-ons to in-person investor meetings. Yet, more than two decades later, they still haven’t quite replaced the handshake.
COVID-19 could go down as the force that obsoleted the handshake and modernized the rules to closing deals. If anything, its impact could lead to a fundamental and everlasting shift in the way business is conducted and how capital is raised.
4. Health Care Systems Will Emerge Stronger and Better
Call me an optimist, but I believe that the greatest gift to materialize from the novel corona virus will be improvements to health care.
Ernest Hemmingway once said, “We are stronger in the places we’ve been broken.” With COVID-19 testing the limits of modern-day health care systems and exposing many weaknesses, the health care industry should come out of this stronger than ever – particularly with blockchain technology already making significant inroads in the medical field.
According to a report by BIS research, health-related blockchain spending is expected to climb to $5.6 billion by 2025 – up from $177 million in 2018.
Blockchain has a wide range of applications and uses in health care, including managing patient records and medical supply chains as well as streamlining clinical trials.
In response to the COVID-19 outbreak, in addition to the support of large corporations and government agencies, a number of blockchain startups are emerging to build solutions that would trace supply chains of medical supplies and track medical essentials, such as masks, gloves and other protective gear.
The Centers for Disease Control and Prevention (CDC) uses blockchain to monitor diseases and report outbreaks in real-time, and is presently working with IBM to develop a blockchain-based surveillance system so that public health agencies can more effectively gather data about patients and prescriptions.
An app called HashLog, by blockchain app developer, Acoer, allows researchers and scientists across the globe to readily track the spread of the coronavirus, as well as understand its trends, using a wide set of public information including data from the CDC and the WHO. The platform’s blockchain technology ensures that every piece of shared information cannot be manipulated or changed.
Most promising, particularly as the entire planet races to develop a COVID-19 vaccine, is the ability for blockchain technology to help expedite clinical trials by facilitating data storage and sharing across researchers while ensuring the trustworthiness of clinical trials data collection and reporting.
COVID-19 is also driving the growth of virtual doctor appointments. Like virtual business meetings, telemedicine will likely become the new normal in a post-corona world – which could help reduce health care expenses and mitigate the spread of deadly infectious diseases.
With the help of modern technology, COVID-19’s legacy may just be faster vaccines, lower health care costs, safer medicines, healthier lives and greater patient control of one’s medical data.
Like every catastrophic event that came before, mankind will not only survive COVID-19, it will prevail. Businesses that adapt will endure. Miraculous inventions will be conceived. Game-changing companies will surface. Markets will find support. And, yes, economic growth will ensue.
Most encouraging is that today’s upheaval arrived during a time of unprecedented innovation and economic prosperity and not during a world war or shortly following a market correction.
Instead of cowering in fear of the unknown, let’s welcome it and acclimate. And, as we ride out this storm, let’s make sure to notice the silver linings. As history has proven, there will be many.