Cryptocurrency has been taking the investing world by storm. In this episode of Industry Focus: Financials, host Jason Moser brings on contributor Dan Caplinger to talk about the latest in cryptocurrency. As Jason and Dan discuss, many investors don't feel entirely comfortable investing in Bitcoin (BTC -0.89%) and other tokens, but there are some ways to wrap your head around the concepts involved and make an informed decision about whether you want to participate in the budding market.

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This video was recorded on May 10, 2021.

Jason Moser: It's Monday, May 9 [it was actually Monday, May 10]. I am your host, Jason Moser, and on this week's financials show, we're talking a little crypto. Yeah, a little something different. We don't do many shows focused on crypto, but today, we're giving you just that. It's because joining me this week, it's our own Dan Caplinger. Dan, thanks so much for being here this week.

Dan Caplinger: You bet Jason. I'm glad to be here. It's nice to be on a different show. It's nice doing the financial-planning power hour with Bro every week. But it's good to be doing something else. So I'm really happy to be with you today.

Moser: Well, yeah. I mean, I think you just mentioned the financial-planning power hour with Bro. You have a lot of great experience talking about personal finance and all of that kind of stuff with Bro, and it really does tie so much to a lot of the stuff that we talk about on this show. Even if it's not terrifically stock-centric, it all ties together. But when you and I were kicking around ideas for today's show, you really captured my attention when you brought up crypto, just because when we got further into the conversation, you clearly had been following this space for a while.

It seems like maybe, I don't know if you fully changed your mind, but it seems like your opinion certainly has evolved over time in regard to the matter, and it's become such a point of focus for so many investors out there today -- folks looking for information, understanding what is real, what is not so real, pockets of this market where there may be opportunity and areas where folks may want to be able to look more careful. This I think it's going to be a really fun conversation. Let's go back to the very beginning here, because you've been writing articles about Bitcoin really going back as early as 2010, right?

Caplinger: Yeah. I mean, Bitcoin has been around for a little over a decade, and I've been writing about bitcoin for not quite since it started, but very close to when it started, and I was the original Bitcoin skeptic. I mean, I took a look at what was going on and it seemed like it was this endless cycle of disappointment. You'd have these huge spikes up and then you'd have these huge spikes back, and it seemed like you'd lure in speculation and people would end up buying high and then you'd have this big pullback, 50%, 60%, 70%, 80%. People would get wiped out, and it just happened over and over and over again.

I went back. I looked at the chart. Bitcoin went from $12 down to $2.50 in 2011; it went from $225 down to $60 in 2013, went from $1100 down to $170 between 2013 and 2015. A couple of years ago it was up to close to $20,000, dropped to $3,000.

As the skeptic, I was focused on the downside. I was looking at those, I was saying, "Boy, 80% loss, 75% loss, 80% loss. How could you possibly invest in this?'' More recently, I've been thinking about it and I'm looking at it and it's like, "Well, OK, yes." But you look at the chart and on the left, you are on the low, and [laughs] on the right you are on the high. Then I tried to think, "Well, OK, what does this remind me of?"

Frankly, it reminds me of a lot of high-growth stocks that we have followed over the years where you get these stellar periods of growth, and then you get these hugely disappointing pullbacks, these really painful pullbacks that threaten to jeopardize your long-term investing strategy. Those who manage to get through those are rewarded by another big upturn, and yes, once you get used to it, you take these big downturns. It's par for the course. But if you believe in the investing mindset or what you are investing in, then eventually you expect it to grow. At least so far, that's what Bitcoin's done. That's what a lot of crypto stuff has done.

Now, this is one moment in time, and like you say, I'm always going to be a skeptic. I am a skeptic by nature. So I'm never going to buy in 100% on this stuff, but my thought process has definitely evolved, and it has a lot to do with market psychology. It has a lot to do with the way the perception of what crypto is. Not just by the nerds and geeks who started the thing, but by ordinary people who are now paying close attention to something that was way off in the corner, not that long ago. Just a few years ago.

Moser: Yeah. Well, and I think for a lot of us the questions center probably around, is this a currency? Is it an asset? What's the ultimate purpose? Is this supposed to be a medium of exchange or a store of value? Not just Bitcoin, but talking about crypto in general, it seems difficult right now to say it's a worthy medium of exchange just simply because of the volatility, the risks that come with the price that you just went through there. But to that point, regardless of whether you look at it one way or the other, historically there have been big risks with crypto that go beyond the volatility, that go beyond the price.

Caplinger: Yeah, definitely. It's interesting because I'm 50 and I grew up in a time when I could count on if I put my money in a bank account, that bank account was going to be there. If something weird happened to my bank, then the federal government's standing behind it and they will make sure that my money is safe.

Moser: Yeah.

Caplinger: That's not something that my grandfather and grandmother were able to take for granted. So when I would talk to them about what it was like in the 1920s, in the 1930s, when you had bank failures and you had runs on banks and you've got these historical pictures of these people lined up around the corner like somebody trying to buy an iPhone on the first day that it comes out, except they were at their bank. They were trying to get money out while the bank still had some money in the vault, and if they got in, they got some money, and if they were too far back in the line, they didn't.

We don't understand that. We just see the bank as, well, it's protected. Well, if you wonder what that's like, just look at the crypto market, because even as crypto prices have gone up, a lot of people have lost all their crypto holdings because of the crypto equivalent of runs on the bank. You have these cryptocurrency exchanges. They get hacked; the stuff gets lost. The biggest ones, Mt. Gox, $450 million worth of crypto vaporized. It's gone.

Moser: Yeah.

Caplinger: The nature of crypto, crypto is like $100 bills. Once it's gone, it's gone, [laughs] in the sense that you're not going to get it back. It's not like a credit card; you dispute the charge and suddenly the money is back in your account. It's gone.

Then you have all these stories about these people who put the Bitcoin in their digital wallet and they've got 1,000 Bitcoins that they paid a dollar for and now it's worth tens of millions of dollars [laughs], but "I forgot the password and I only get five tries and there's no challenge question." It's not a matter of remembering my daughter's middle name or something like that. There's millions of dollars at stake because I blew it. I messed a password up. So there's risks.

My point being, there's risks involved. It's not just a matter of Bitcoin or whatever crypto you like, the price is going up or down violently, which it is, and that is a risk. But there's also this nature of crypto is a totally different thing, and if you're not prepared to handle it, then you can get burned by it, and it can be a really costly burn.

Moser: You know, it's so funny you said that about the 1920s, 1930s, talking to grandparents, and I vividly remember my grandfather on my father's side, same time period. I remember as a kid growing up, you would find in his house and in his attic, he would have those jars. Do you know, a pickle jar you would find in a convenience store? Like one of those massive jars of pickles up on the counter or whatever? He would have jars and jars with nickels and pennies and dimes, because that was safety. That's what he knew. That was the safety he could depend on.

You're right. It's not anything we've ever had to really deal with, and that's a mentality now that we're having to come to grips with in regard to crypto because it's so new, there's so much we don't know, and I think that lack of knowledge certainly creates at least some of the skepticism. But maybe to your point there about losing a password, picking the wrong institution, it seems like now we're seeing progress. The market is certainly trying to address some of those risks. I guess I just wonder if it's still enough, because it sure feels like a lot of folks are still in crypto, in general, speculating, and more than likely most don't really know what they're getting into. But how is the market addressing that? How is the market trying to take on that risk?

Caplinger: I think it's a fair statement to say there's a lot of people speculating and it's just a matter of the price goes up and they feel good, and the price goes down, they feel bad.

Moser: Yeah.

Caplinger: They don't necessarily know the implications of what they're doing. That's always going to be the case with anything like this, and I think you have to accept that. But one reason I think you have crypto gaining in acceptance is just that you have mainstream players who are trying to capitalize on it. I mean, it's an opportunity.

Moser: Yeah.

Caplinger: It's a profit opportunity. It's been a niche profit opportunity until now. Now it's going mainstream, and now the big players are starting to wake up and say, ''Hey, we're not going to let these niche players have all the fun. [laughs] Let's come in and take advantage of it.'' So you've got Goldman Sachs (GS -1.05%) reactivating its cryptocurrency desk, you've got Fidelity finding ways, working with partners to start holding custody of crypto. You've got other Wall Street players trying to figure out the custody game. Because really, custody is a thing. I mean, it's that fear. It's that, where do I hold it?

Moser: Yeah.

Caplinger: If it's in this digital wallet, I've got to remember my password. The last thing I want to do is park my money at some institutional fund and then have whoever is running the institutional fund, they forget their password and [laughs] then suddenly it's like, "Oh boy." Now here I am.

Moser: I don't think you can use Okta (OKTA 22.91%) for that, can you? [laughs]

Caplinger: You're trying to get, you're also starting to see different ways to invest in.

Moser: Yeah.

Caplinger: When the futures exchanges started allowing Bitcoin derivatives to start trading on recognized regulated markets, that was a big boom. Because any financial institution, any institutional investor they don't want to deal with this digital wallet nonsense, but a futures contract. They do those all the time. That's not a problem.

You are starting to finally see exchange-traded funds come up; there's been a couple they've just got approved up in Canada. You've got the SEC, it's been sitting on, there have been a bunch of companies trying to come up with the Bitcoin and the other crypto ETFs here in the States for quite a while. The SEC has been sitting on them; they're getting more and more and pressured to stop sitting on them. I think you're going to see forward progress on that. As that forward progress happens, it just become easier and easier to trade on.

A lot of people I know the reason they went to Robinhood and downloaded that app had nothing to do with stocks. It's because they let you buy and sell crypto, and the fees were reasonable, and so they were totally fine with it. You look at PayPal Holdings (PYPL 0.15%), their earnings over the past couple of quarters, they introduced crypto purchasing toward the end of 2020. They've seen huge increases, not just in that side of the business, but just in active users overall. It's like once they started offering the crypto well, suddenly, OK, well, fine. I need to have a PayPal account to buy my Bitcoin. But hey, I could actually pay for my online purchase with PayPal just like I always could have for the past 15 years, but I never really cared about it. But now Bitcoin was my gateway and now suddenly I'm using the PayPal stuff, too.

Moser: Yeah.

Caplinger: There are just all kinds of things that are aligning in a way to make awareness of the cryptocurrencies bring in more into the general awareness, and once that happens, you start seeing these cross-sell opportunities, these alignments, these opportunities for alliances and partnerships, and that gets the creative juices flowing, and then suddenly the industry looks a lot different from what it did when it was just this back corner niche deal.

Moser: Yeah. By the same token, you still have plenty of folks very high up in the banking world. Smart people who aren't, they're not bought in. You could argue that maybe they're not bought in because their incentives dictate that to whatever degree.

But I like Jamie Dimon, for example, CEO at JPMorgan (JPM 0.91%). I look at him and take what he says seriously. He's got some experience. He knows what he is talking about. He's been in the business for a while. It's very interesting to see his perspective on Bitcoin. I would assume this just extends to crypto in general, but I mean, he's not a Bitcoin supporter. He said one thing he noted recently; to me, this is what stuck. It made me think, you know what, this is kind of how I feel, because he said people have to remember that a currency supported by the taxing authority of a country, the rule of law, central bank: We're over the Wild West. You're still with crypto, right? There is that lack of support. There's that lack of confidence that there is a taxing authority. There's a country. There's rule of law. It does seem like right now it's a little bit of a Wild West sort of a scenario.

So with that in mind, I'm not saying it will always be that way. Maybe it won't, but we obviously need to, need to tread carefully at least. So I guess I wonder when it comes to crypto -- let's talk about some of the things that you like and some of the things that you don't like, given the way your thoughts have evolved over the years. What are some of the things that you like? What are the some of the things that you don't like when it comes to crypto?

Caplinger: I agree with what you're saying with respect to the macroeconomic stuff. I respect Jamie Dimon quite a bit and what he says. It carries a lot of weight. I think there's a bunch of different ways to look at crypto, what its purpose is, and that's part of the interesting thing about the market is with the stock. Usually, when somebody buys a stock, it's because they expect the company to do well. You might think that some different part of the company would do better than what I think, but in general, we're all rooting for the company.

Moser: Yeah.

Caplinger: For buying crypto, it's a lot different. People buy crypto for a whole bunch of different reasons. You can buy Bitcoin because you think that it is a store of wealth, and we can agree or disagree on that. The crypto applications I liked the best are the ones that when I look into the use case, I can figure out why does this thing have value? What is it doing? What is it trying to accomplish? Because I feel like, why? Because a lot of the stuff, it's there and it's, what is Doggy Coin? What's Dogecoin (DOGE 6.41%) there for? [laughs] Sorry.

Moser: That's OK. It feels that way.

Caplinger: I'm always going to call it a Doggy Coin. I mean, I want to call it a Doggy Coin, but the reason that it's there, it was created as a joke. As a joke, if that's its fundamental thing, then people are playing with it, and entertainment has value. People play the lottery.

What I like are the cryptos that I find more interesting, are the ones that they have a use case that I can get behind. I can figure out, OK, that's what they're trying to do with it. Ethereum (ETH -0.67%) makes a lot more sense to me than Bitcoin does because crypto, if you assume that cryptocurrency is an environment that is going to has an interest level, it has people using it. It has people trying to innovate with it, then having essentially the gas that runs the whole network, and a lot of people are using the Ethereum network to do the things that they are trying to do with crypto generally. If you need Either for that, then owning Ether has value, and as long as there is demand for the things that take Either to do, then Ether will have value.

It's the same thing with the Ripple (XRP 2.75%) token, XRP. I was fascinated by Ripple because the idea of moving money around the world as fast a pace as possible was really interesting to me. I've tried to do some international transactions every once in a while. It's a pain in the neck. You go to your bank; your bank doesn't necessarily know what the heck they're doing. [laughs] Banks in other countries, they're like, well, are you using the Swift network? And then suddenly my local town bank is like, Swift, what the heck is that? It's just speaking a foreign language.

And so a token like XRP that somehow facilitates that transaction in exchange for you need to use some of this token in order to make it work. That I understand. That makes sense. That has value. I don't necessarily know what the value is; it has value to me, might have value to you, and then if there are enough people interested to make a market, then the market can come up with a value, and that makes total sense.

Those make sense to me. The ones that are more like these collector-item things, those I have a little bit more difficulty understanding, 'cause I've always had trouble understanding the dynamics of collectibles.

Moser: Yeah.

Caplinger: A baseball card. Who's paying a million dollars for a baseball card?

Moser: [laughs]

Caplinger: Why do you do that? I think I think the answer is as individual as the individual collectors' motivations are. That's fine for an individual item. But when you start talking about a mass market, like what Bitcoin has become, it seems kind of the rule of the mob in some ways. That's where I'm comfortable with one side of crypto versus another slide of crypto.

Moser: What is Binance?

Caplinger: Binance is an exchange. The same type of thing that Coinbase (COIN 1.38%) is doing. Coinbase just had their publicly traded stock now. Binance is not publicly traded.

Binance has a couple of platforms. It has one U.S.-only platform for crypto trading, because the U.S. basically said if you're going to be doing business in the U.S., you need to do it with us. is a separate one that the rest of the world uses. You can trade a whole bunch of stuff there. The fees are relatively low. They are lower than Coinbase's fees.

But the thing that's interesting there, they have their own token, BNB, the Binance token (BNB -1.36%), and yet its a value has gone up, has gone way up. That's one of those where I understand the use case, too, with that, because if you are a trader on the Binance platform and you own their token, you can use that token to pay your trading fees and they will give you a discount. It's a 25% discount.

And I totally understand why that token went up. It's because there's a whole bunch of people trading cryptocurrencies, a bunch of new account holders on Binance. They're buying the token to get the discount. I can understand that. I can understand that if cryptocurrency suddenly goes out of favor and nobody is trading the thing anymore, then this Binance BNB token is probably going to go down through the floor again, because people won't need it, because they're not going to trade it, because suddenly they don't care about crypto anymore. So, yeah.

Moser: Yeah. It's the values. People ascribe value to it. You get to a point where they'll ascribe so much. Clearly, Bitcoin has been the crux of the story up to now. What we're seeing now, more than ever, though, and it was really bizarre to me to see this manifest itself in the form of a Saturday Night Live over the weekend, which, I've got to admit, I haven't watched Saturday Night Live in probably 20 years. But the fact remains that Elon Musk was on Saturday Night Live and Dogecoin or Doggy Coin, [laughs] as he liked to call it, was trending all over Twitter.

This was a big deal for a lot of people, but I think it's a big deal for the wrong reason. It really has a penny-stock vibe to it. Like you said, Dogecoin, ultimately, it was invented as a joke. It was more or less a thumbing of the nose to crypto, I guess.

What do you make of this move toward penny-stock-like crypto instruments? We see it playing out in the stock market still, even to this day. Is this going to be part and parcel of this market? Are we going to have to deal with the penny-stock segment of crypto going forward?

Caplinger: I think it's human nature, Jason. We see it in the stock market all the time. Even now, even with fractional share investing, even with different ways of getting into high-priced stocks. You still have a group of investors out there who are less willing to invest in Amazon (AMZN 2.08%) because its stock is $3,000 a share or $3,500, whatever it is these days. They would prefer to buy some stock that's $3 a share or 30 cents a share because instead of being able to afford one-tenth of a share with $300, suddenly, they can buy 100 shares or 1,000 shares of that penny stock, and they feel like they're more invested in it; they have more of a return.

I think that's part of why we've seen Bitcoin. Bitcoin did its big, explosive move up. It's around $60,000 now. But it's hovering in that $50,000-$60,000 range. Meanwhile, we've seen the lower-priced tokens do really well. Ethereum, it's not that much lower. It's an order of magnitude lower priced. It's still one of the highest-priced out there, but its returns over the past few months have really crushed Bitcoin.

One of the interesting things going on Binance or if you're on a coin, wherever you are, if you're trading the thing, if you look, you'll notice that it's the lowest-priced tokens that are offered on whatever exchange that you are. They'll see even more volatility than you'll see on most of the other tokens. Dogecoin is a great example of that, because it was only a couple of months ago, you buy the thing for $0.01, you buy the thing for $0.05, and it's essentially a lottery ticket. A lot of people just won the lottery because now it's $0.50 [laughs]. People want it to be $1, but a lot of people they already won it because 10X is 10X. Whether it's $0.05 to $0.50 or $50 to $500, it's still 10X.

I think that's just going to be a human nature thing. Now, Dogecoin, I think, is unique because a lot of people think it's fun. The Internet and pets, they go together [laughs]. You have cat memes and you're going to have Dogecoin. Dogecoin's going to be around as long as cat memes are around. I'll go on record saying that.

Moser: That's probably right. That can be good and bad. Entertainment certainly has value, like you said earlier. For someone like me who, I don't know that I'm really interested in it regardless, maybe one day I do gain some interest in it and want to consider dipping my toe in the water. But maybe going the token route isn't the right way to go. Maybe there are other instruments. There are ways to invest in crypto beyond just actually owning the tokens themselves, right?

Caplinger: Sure. This is the case with just about every controversial or investing area that has issues, where some people like it, some people don't. There's always these different ways of playing it.

You're starting to see, now that crypto is pulling out of the corner into the mainstream, you're starting to see companies that they're not going to be directly invested necessarily in crypto, but they're going to make money based on people being interested in crypto. The Coinbase IPO is a great example of that. Coinbase doesn't necessarily have to own, for its own account, any cryptocurrency at all. I think probably it does, but it doesn't have to. The business model wouldn't say that it would have. To that extent, the same way that stock, and if you think the stock market is going to be active, then you can buy shares of a company like Charles Schwab (SCHW 1.72%), who makes brokerage services available to folks, same way. If you think crypto is going to be a hot thing but you don't want crypto exposure, you just want exposure to an expanding industry, then Coinbase is attractive.

Another stock that I've looked at a lot is Silvergate Capital (SI). They have become the go-to financial services player in the background of a lot of these cryptocurrency companies that are trying to make a splash in the industry. If there is a crypto element to it and it needs financing of some sort, or it needs some sort of traditional financial-services support, then Silvergate's done a really good job of being, "Hey, we're the one, we know everything. We've done this for a thousand people before you and we'll do them for a thousand people after you. There's no reason to talk to somebody else who doesn't know as much as we know about getting stuff done. Come to us." So far that's been a really good business model.

It's the same thing that you see in other areas where it's like you can take away the risk of the actual token cryptocurrency price movements and still participate. If you think that this is an innovative place, if you think that this is something that's going to get the attention of the business world, not just this month and next month, but next year and over the next 10 years -- if you don't think it's going away, then those are some plays that you can look at.

I'm sure there's going to be more and more companies that find innovative ways to make it easier, more effective, get more out of cryptocurrencies because the money's there. Now that the money is there, there's incentive for smart businesspeople to find ways to put it to work. Once that happens in any industry, you really start to get that creative vibe going, and that builds excitement, and that builds and builds and builds on itself. As long as there's no catastrophic implosion of the industry, I think you've reached critical mass. It's going to be interesting to see where it goes from here.

Moser: Yeah, I think you're right. I think we're at a point where, love it or hate it, this isn't going away. It's a matter of ultimately figuring out the most ideal use cases and recognizing the winners versus the losers. That, obviously, it's going to take some time. It's going to take some learning. It's going to take some better understanding as to the purpose that these instruments ultimately serve. I feel like if I were interested in dipping into it -- not yet, but maybe that it will come eventually -- I'd probably start with the pick-and-shovel plays first. I like that Silvergate's one that Matt and I talked about for a little bit. Coinbase, absolutely a fascinating IPO that just came public. A couple of good ideas for investors interested in the space to keep an eye on.

Dan, I think that's going to do it for us this week, but I really appreciate you taking the time out to talk about this with us. It's not a subject we cover a whole heck of a lot on this show, but we do like to give it its due attention. Having you dig into all of this has been really helpful for me and I'm sure for our listeners as well.

Caplinger: I appreciate that and I'm glad to be here. I know Matt wasn't able to be here, but always glad to help out. Yeah, it's such a fascinating part of what's going on in the markets today.

Moser: Well, remember, you can always reach out to us on Twitter, @MFIndustryFocus, or you can drop us an email at industryfocus@ As always, people on the program may have interest in the stocks they talked about, or The Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us. For Caplinger, I'm Moser. Thanks for listening, and we'll see you next week.