Blockchain is the real, sustainable innovation today and too often it’s conflated with cryptocurrency. It’s important for investors to focus on companies that are looking to help bring blockchain technology benefits to society.
“I think it’s important to point out that blockchain is here to stay,” said New Constructs CEO David Trainer. “The companies that build applications on top of blockchain may not be because the whole design of the blockchain is decentralization. So, the idea that a particular corporate entity is a gating force in allowing the individual users to access the benefit of the blockchain goes against what blockchain is about. Blockchain is about getting rid of toll takers.”
Trainer also advises investors should definitely avoid putting a lot of money into any individual cryptocurrency at this point in time. Trainer added that Tesla’s (TSLA) – Get Report Elon Musk saying that he needed to test the liquidity of bitcoin in a market that recently traded $53 billion is absurd. “He was using it to juice earnings, there’s no other reason, and you can do that with a lot of other assets.”
Trainer and the other panelists during a digital transformation webinar sponsored by VanEck (OUNZ) – Get Report agree that it’s important for investors to test the volatility and do their due diligence before investing.
“It’s a marvel how much people are willing to trust the Musk narrative no matter how ridiculous it might be,” Trainer said.
The open-source movement is here to stay and blockchain is a continuation of that. And, that’s where the value is. Open source means it goes straight from technology to society and corporations, by their very definition, are designed to make money by stepping in and taking a toll between those two things.
“Businesses like Coinbase (COIN) – Get Report and other digital currency exchanges don’t really have an advantage other than being first to market. Other companies are going to be able to do the same thing because they can also access blockchain technology. So, that’s where investors need to be discerning. Understand what you’re getting into and understand the price in which you’re entering so you’re not just buying into something because it’s popular” said Trainer.
Coinbase’s value is based on how many people are using its network, according to John Patrick Lee, CFA, and product manager for VanEck. “Anybody can open up an exchange, but Coinbase is valuable because so many people are using its exchange. But, the network effect is a moat.”
Investors must be ready to differentiate between cryptocurrencies and blockchain, and too often the two get confused by investors who are new to the digital currency space.
“I’ve been in rooms on Clubhouse where there are arguments over the value of a specific cryptocurrency and cybersecurity experts chime in saying that there are applications for cyber that can save certain amounts of money. And, I asked them if you need bitcoin to do those things or blockchain specifically to do it. It’s not so much about the specific cryptocurrency, but more so the blockchain,” said Zev Fima, research analyst with Action Alerts PLUS.
If you’re looking to get into this space and own some bitcoin, then go buy some bitcoin — there are plenty of places to do that. But, if you want exposure to the blockchain technology ecosystem, then you have to be ready to differentiate the two.
“You could have been very bullish on the internet in 2000, but if you bought the wrong dot com then it’s the same as being bullish on blockchain and buying the wrong cryptocurrency now,” Fima added.