One of the hottest crypto performers thus far in 2023 is BitDAO (BIT -1.13%), up more than 39% year to date. What makes BitDAO so interesting, though, is not its recent performance. Instead, it's that BitDAO has the potential to change the whole crypto game. This is a new way of investing in crypto that uses the "wisdom of the crowd" to help investors diversify across a wide variety of crypto assets in a way that is both democratic and transparent.
Formally, BitDAO is a governance token for a decentralized autonomous organization (DAO) built on the Ethereum (ETH -0.91%) blockchain. This organization manages and invests in crypto assets, and if you hold BIT tokens, you can vote on what the organization should invest in next. At the same time, your BIT token enables you to share in any profits from those investments. Let's take a closer look at what makes BitDAO so unique and why it could be such a game-changer.
The rise of the DAO
In many ways, a DAO (pronounced like Dow Jones) is simply a new type of governance structure made possible by blockchain technology. In the non-blockchain world, organizations can choose governance structures such as "corporations" or "limited liability partnerships." In the blockchain world, the preferred structure is the decentralized autonomous organization.
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As the nomenclature suggests, a DAO is fully decentralized, fully autonomous, and organized for a specific purpose. Smart contracts power all activity in the DAO, and it always takes place on the blockchain, so there is perfect transparency into what people are doing within the organization. In other words, there's no shady figure in a corner office secretly commingling funds without your knowledge.
While the DAO structure sounds a bit exotic, it's actually more common than you might think. Some of the most popular crypto tokens in the world -- including Aave (AAVE -0.71%) and Uniswap (UNI -2.44%) -- are set up as decentralized autonomous organizations. Ethereum founder Vitalik Buterin has called DAOs one of the most exciting new avenues of growth for the Ethereum platform, and the number of use cases for DAOs is truly staggering. So, as you can see, BitDAO is part of an important new trend in the crypto space: the rise of the DAO.
A new way to invest
BitDAO has the potential to change how people invest in cryptocurrency. If you think about the current crypto investment model, it's basically this: A single person analyzes hundreds of possible cryptocurrencies and then invests in a single crypto traded on an exchange. The new model is the following: A single person invests alongside many different investors from all over the globe, and collectively, they decide on what to invest in next. You are not limited to investing in cryptocurrencies, either. Recently, there has been much debate about whether BitDAO should branch out into derivatives and high-yield financial instruments.
If you check out the BitDAO website, you can see some of the projects it has invested in, such as a new Ethereum Layer 2 blockchain network. And here's the important point to keep in mind: As a holder of a BIT token, you get to share in any profit distributions from the BitDAO treasury. If you think about all this, it's a bit mind-blowing. At times, BitDAO acts like a mutual fund or ETF. Other times, like an early-stage venture capital fund. And still others, like a hedge fund.
Should you invest in BitDAO?
As noted above, BitDAO has had a remarkable run over the first two weeks of 2023. This is primarily based on a single factor: a massive $100 million token buyback program that started on Jan. 1. Over the first 50 days of the year, the BitDAO treasury will buy back $2 million of BIT each day. So it's likely that the price of BitDAO will continue to rise through much of the first quarter of2023, based on all of this buying pressure.
But what happens after that? While BitDAO is already the No. 41 crypto in the world by market cap, the idea of investing in crypto via a DAO is probably so new that it is unlikely to catch on with the average retail investor in 2023. So I'm only cautiously optimistic that the price of BitDAO will continue to skyrocket after the buyback program stops.
However, I am bullish on the "wisdom of the crowd" to uncover great investment opportunities, and so I'm also bullish long-term on the prospects of decentralized autonomous organizations such as BitDAO. They have the potential to change the way we invest in crypto.