Investment Theme: The Digital Economy

The digital economy is defined as the intersection of technology, digital assets, and finance – these are its three pillars. The first, technology solutions: the leading-edge developments in technology that continue to shape how we live, work, and play. The second, digital asset infrastructure: an emerging and growing ecosystem supporting blockchain and cryptocurrencies. The third, financial foundations: the players and platforms that underpin the digital economy, a new generation of financial institutions.

From an investment perspective, investing in the digital economy is an infrastructure play, not unlike investing in the Internet during the late 1990s and early 2000s. At the time, it was clear the Internet was growing and that it would be transformational, but no one knew how it would evolve and what that transformation would ultimately look like. That same initial uncertainty currently applies to the digital economy, so rather than invest in the uncertainty of its future, invest instead in the certainty of its emergence, its growth, and the fact that it is already re-shaping the future.

Michael Sonnenshein, CEO of Grayscale Investments, an asset manager with a product focused on capturing the digital economy, said “the digital economy represents a fundamental reimagining of the global financial system to a new paradigm that harnesses the speed, convenience and capabilities of modern financial technology. Our own Grayscale Future of Finance UCITS ETF (GFOF) is one product that aims to capture these themes in a single convenient fund, but there are many ways for investors to receive exposure to this global megatrend.”

Examples of companies that fall under the digital economy theme include digital asset miners, hardware providers, exchanges, asset managers, brokerages, payment platforms, and others. Together, these firms are creating greater utility for consumers, reshaping business models, reorganizing competitive dynamics, and redistributing value across industries. Digital assets, as perhaps the most ‘unfamiliar’ group within the three pillars, is disrupting technology and finance in ways that are generating immense social and economic improvements in the realm of payments, privacy, data, and more.

Every investment theme should be considered within the context of the macroeconomic environment, and the reality of today’s rising interest rates combined with inflationary pressures has resulted in global growth coming under pressure. Global equity markets experienced a broad-based downturn that began around the start of 2022 as we continue to face an ongoing battle with COVID, geopolitical conflicts, and supply chain issues. The companies building the digital economy have been affected and suffered in performance as well. However, it’s important to remember that this theme is new, and it is this ‘early’ quality that represents a unique opportunity for investors. In fact, research has shown that the adoption curve of digital assets makes it the fastest rate of technology adoption in human history (vs. TVs, computers, and even the Internet). Investors should consider how companies and projects building this transition to the digital economy could positively impact a diversified, long-term investment portfolio.