On this week's Rule Breakers podcast, Motley Fool co-founder David Gardner takes on a topic that he's never hit before, but that plenty of his listeners want to hear about from him: cryptocurrencies. To answer their questions about this transformational invention, he's enlisted the help of Fool analyst Aaron Bush.
In this segment, Gardner poses some vital questions for anyone looking to put a little blockchain into their portfolio: What companies in this space should we be looking at? Is bitcoin at its current levels still a reasonable buy? And is buying into Initial Coin Offerings worth the risk?
A full transcript follows the video.
This video was recorded on Oct. 18, 2017.
David Gardner: I'm going to ask you three money questions real fast. At least one of these is probably unfair, but you're used to that from me. Is that right?
Aaron Bush: I've gotten used to it.
Gardner: OK, good. My three unfair questions are in no particular order. I'll let you pick the order that you answer them. How about a stock or two that we, as public-market investors, might want to take a hard look at, and it might be something we recommend actively in our services. I know you're working on a report looking at the beneficiaries of this for us public market investors. So that's one.
Unfair question No. 2 is definitely, should we be buying bitcoin today at $5,500 a share looking forward five-plus years? As Foolish investors, is that a good buy in your opinion?
And then question No. 3. If you like initial coin offerings, ICOs are a thing, and you earlier said that this is a new asset class. A lot of us as public market investors know that an IPO, an initial public offering of stock, is a significant event. It's kind of how stocks are born. So if you could, in any combination, for these three unfair questions, maybe mention ICOs and any opinions you have about them as well. Ready, set, take it away, Aaron Bush.
Bush: We'll start at No. 1. I do think there are a lot of companies that are starting to put blockchain to use. I think one particular company that is putting it to use in a more cutting-edge way is Nasdaq. They're trying to let blockchain underlie, become the new piping, for their private-market transactions. That is a really good test, and if it works well, we'll see, probably, blockchain as piping expand to the other pieces of that business for the public-facing transactions. Then we'll see other exchanges hop on board as well.
Another company I'll throw out, just because there are different ways to look at this. Nasdaq is a company putting blockchain to use, but maybe if you're looking for more of a picks-and-shovel play -- I think that NVIDIA is doing some interesting stuff here.
Last quarter, they increased their revenue $150 million solely because of people buying these chips to help with mining. Ethereum mining was a big piece of that. But as more coins go onboard and mining grows in importance in lots of different ways, the computers that have to do the heavy lifting to actually bring these things to life and support the networks, that's going to be a tremendous way to create value as well.
So I think those two companies are really interesting to look at, also for reasons beyond just blockchain and cryptocurrency, which I think is important.
Gardner: OK, Aaron. Fifty-five hundred bucks here. This asset class has run up quite a bit in the last two years. That means people who believed two years ago have made a lot of money. Five-plus years from now, should I today be buying bitcoin at about $5,500 a coin?
Bush: I'm going to say yes. I think that is actually going to surprise a lot of people, but I think with bitcoin in particular, the most important metric is the number of believers, and right now there are still so many people questioning it. In the end there are going to be about 21 million bitcoins in circulation. This is kind of a pointless comparison, but in the U.S. there are 11 million millionaires, so there won't even be enough for all of them to own two bitcoins.
Obviously we're not going to see it break down like that, but I think there still is enough pent-up demand out there from people who are on the sidelines. So if this actually does prove to be a legitimate store of value, the $93 billion market cap today can go 10x, 20x higher just as people believe in it. It's sort of like gold, but visual gold, as you might hear thrown around.
Gardner: So more Bitcoin is being spun out.
Bush: Yeah. So one key factor in all of this, not to open another can of worms, is forking. So if the development community, or the people who actually own bitcoin, disagree on the way that bitcoin should grow -- and bitcoin isn't a static thing. It's a changing currency. It's improving over time. But if there is a disagreement, there will be what is known as a fork. We've seen one of them. It's like a spin-off, in the sense that what was just bitcoin is now bitcoin but also a separate cryptocurrency, Bitcoin Cash. And the idea is that through spinning them off, maybe you can create more value by having that separately, but it lets each development community start creating them in the way that they prefer.
Gardner: And Aaron, I can't let you get away without briefly talking about initial coin offerings. Not IPOs for stocks. This is ICOs for cryptocurrencies.
Bush: This is a fundraising mechanism to help fund new projects. Traditionally in venture capital, most projects are completely unavailable to the public to invest in. You have to be a very specific group of people with access to generally significant capital to invest in new projects. With the tokenization of cryptocurrencies, we're starting to see that open up a bit, and now any investor can invest in and fundraise for these new products from the very beginning.
Gardner: So your disruptive company where you're challenging Uber and Lyft, which we've created just during this show, this is a potential ICO in the future.
Bush: There you go. Disrupting venture capital a little bit, too.
Gardner: I'm going to keep my eyes peeled. Aaron, the last time I had you on this show, I think you were just simply explaining something like dividend yield.
Bush: Yeah, this is a step up.
Gardner: It's kind of like trying to explain the internet, let's say, to Vikings. There's a lot of steps one has to go through just to think about what we've thought about in this last hour or so together, and there's going to be a lot more discovery ahead. Just looking back at the internet the last 30 years, right, there was AOL the first 10 years as America came online and then the rest of the world. That was the age of AOL.
Then it changed, and Google all of a sudden showed up. Facebook after that, next 10 years. Those things didn't even exist back when AOL started, and now here we are, let's say, in the, well, it's not really the post-Facebook environment. But there's a lot of things happening. This is an example. Blockchain is like decade three of the internet in its own way. But it's obviously impossible for you and me to speculate as to how this will go going forward because it's like trying to explain the internet or think it all through in 1995.
But you've done a great job setting us up with both a lens, in order to look in and see what's happening, and an ardent interest in paying attention, and you've done a great job here at the Fool with that. You help us all here around HQ, and I want to thank you a lot, Aaron, for being with us this week.
Bush: I appreciate it, David.