Should You Invest in Bitcoin? Here's What Mark Cuban Thinks

The billionaire investor put bananas behind him a long time ago.

Mark Cuban's views on crypto have come a long way since 2019 when he said he'd rather have bananas than Bitcoin (BTC). These days, if he's not putting money into Shark Tank projects, about 80% of Cuban's new investments go into crypto or crypto-related projects. The outspoken crypto enthusiast spends a lot of his time and cash on digital assets.

Cuban is a fan of Bitcoin, Ethereum (ETH), and a handful of other cryptocurrencies. Last April, he said about 60% of his crypto portfolio was in Bitcoin, but a year is a long time in crypto and the balance may have changed since then.

Here are some key crypto lessons we can learn from Cuban:

1. Do your research

Last June, Cuban was one of many investors who lost money to the collapse of the Titan DeFi token. Titan's price fell from over $60 to almost nothing overnight. Titan's developers say it was not a rug pull -- a type of scam where people pump up the value of a crypto and then abruptly pull all the cash out. Nonetheless, Cuban lost $200,000 and told The New York Times, "I should have done more homework on it."

There are over 18,000 cryptocurrencies out there, according to CoinMarketCap. Many are legitimate projects, but some will turn out to be scams or poorly thought out or managed enterprises. Solid research is the best way to weed out the pretenders. Look into who's behind the crypto, what problem it wants to solve, and how the tokens or coins will be issued. Or, as Cuban told CNBC, "Always look for the utility. That is where value is created."

2. Bitcoin is not an inflation hedge

Cuban sees Bitcoin as a type of digital gold, a store of value that should hold its value over time. But unlike some, he doesn't think either of them are a good hedge against inflation. In January, he tweeted: "Gold is not an inflation hedge. That's just a marketing slogan like it is for BTC."

The billionaire has never been blind to Bitcoin's faults. He told The Delphi Podcast last year that Bitcoin will never work as a currency. "It's too hard. It's too slow. There's a limit on the number of transactions," he said.

However, as an alternative to gold? This is where Cuban thinks it shines. "The whole time, I said there was a store of value where if you could get people to believe it was a better alternative to gold, then -- because of algorithmic scarcity -- the price would go up."

3. Smart contracts are a 'game changer'

Understanding smart contracts was Cuban's lightbulb moment in terms of cryptocurrency. Smart contracts are tiny pieces of self-executing code that live on the blockchain. They are what makes it possible to build applications and automatically implement various types of agreements. They currently power a lot of the decentralized finance industry and are also used to build non-fungible tokens (NFTs).

For Cuban, this is only the beginning. He says smart contracts have many business applications people haven't even considered yet. Moreover, Cuban sees huge potential in the fact that smart contracts enable decentralized decision making. Rather than having a board of directors or CEO set the direction of an organization, what's emerging are decentralized autonomous organizations (DAOs). The Shark Tank judge recently told The Problem with Jon Stewart podcast that this is where he is focusing a lot of his attention.

4. Cryptocurrency is like the early days of the internet

One reason Cuban is excited about crypto is that he believes it is similar to the early 1990s when the internet was just starting to take off. "Now this is America 2.0. This is money 2.0." He said in the RealVision interview. "And I don’t mean currency money, I mean being able to earn money via digital has all changed."

This comparison shows the huge potential in the cryptocurrency industry, but it also highlights the dangers. Some companies like Amazon and eBay became household names, but many of those early internet projects did not survive in the long term. The challenge for crypto investors is to pick the ones that are most likely to last.

Should you invest in Bitcoin?

Every person's financial situation is different. Cuban has some good advice about crypto investing, but he's also a billionaire with his own financial goals and his own sense of risk. If you're considering buying Bitcoin, first make sure you have your financial bases covered. That means, for example, being on top of your retirement contributions and having an emergency fund that can cover three to six months' worth of living expenses.

It's clear Cuban has spent considerable amounts of time understanding crypto and its potential -- and even he has lost money to at least one dodgy project. Take a leaf from his book and try to learn about smart contracts, DAOs, and what utility they may have. The more you research, the more you'll understand about the industry and the better the investment decisions you will be able to make.