Mark Cuban has never been shy with offering up his opinion, particularly in the world of investments. But when it was reported that he was making investments in an initial coin offering after calling bitcoin “a bubble,” we wanted to ask why. Cuban discusses blockchain, active vs. passive and public vs. private investing.
MODERN TRADER: You indicated back in early June that you thought bitcoin was in a bubble, and then you made a major investment into the space. What changed your mind?
Mark Cuban: I have invested in blockchain and a fund that invests in blockchain. I’ve been a proponent of blockchain for a long time. So nothing has changed. The value of bitcoin is completely a function of supply and demand.
MT: What are your thoughts about the initial coin offering (ICO) craze? Is the rush of capital into these tokens masking core issues of suitability and utility, or are they rewriting the rules on startup finance?
MC: It depends on the ICO. I’m involved in mercuryprotocol.com. The integration of our protocol into applications provides an opportunity for app developers to generate revenue and provide a better service. The tokens enable the service. When the offering is driven by the application and opportunity to deliver new and different and possibly groundbreaking applications, like we think is possible with Mercury protocol then I’m a fan.
MT: Have blockchain applications already eclipsed bitcoin as the real disruptive element of the digital currency revolution?
MC: Without question. There will be some amazing breakthrough applications built on blockchain. It’s just a question of what they will be and when.
MT: Where does cryptocurrency/blockchain tech rank in terms of technological game-changers?
MC: I don’t know as far as currency. Blockchain can be a game changer at some point.
Active vs. Passive Investing
According to Morningstar, active funds saw outflows of $285.2 billion in 2016; passive funds attracted inflows of $428.7 billion. However, active investing remains a bigger part of the market: $9.3 trillion vs. $5.3 trillion. Over the last 10 years, passively managed indexed investments have handily beaten actively managed funds, but during the first half of 2017, the majority of active managers outperformed their benchmarks (and consequently their passive counterparts) in eight of the 12 Morningstar style categories.
MT: Do you believe investors should own actively managed mutual funds and ETFs? Individual securities?
MC: I think until we see more IPOs — a lot more — passive [investing] is better. There is too much money chasing too few stocks. It’s far more likely that stocks will continue to go up again based on supply and demand. The number of public stocks has fallen dramatically over the past 20 years; there are fewer than half as many public companies, [and that number continues to fall]. This has to change first to make active [investing] more attractive.
Public vs. Private
The JOBS Act opened up investment access to private companies for non-accredited investors. Now, Reg A+ is bringing these companies to market. In the past few months, the first Reg A+ IPOs trading on national exchanges have been launched: Myomo, Inc. (MYO), Adomani (ADOM) and ShiftPixy (PIXY) to name a few.
MT: How do you feel about the liberalization of non-accredited investor access to venture and early-stage companies?
MC: I like it. Reg A+ stocks aren’t early stage. They just are smaller than the existing public companies. Giving people access is a good thing