Morningstar Magazine - February/March 2018 - 59

Wu: What you'll likely see moving forward,
if blockchain is to succeed, is a little more
formalization as to how to coordinate a decentralized group to reach collective goals. As you
might imagine, that's a social problem in addition
to a technology problem.

Wu: A lot of these companies will fail, and
that's a natural part of having a new technology
and a rapidly growing space. The few that
do succeed have the potential to dramatically
change the economic landscape.

public blockchains, and blockchains that touch
both sides-partially public and partially private-
to try to solve some of those problems.

Sinegal: It's a gold rush. Some people are getting
rich, but many will go home empty-handed.
PitchBook has insight into some of the smartest
investors in early-stage companies. Any interesting
trends there?

Morris: It's a massive experiment, and the sample
size is growing rapidly every day.

Morris: Despite all of the press that blockchain
and cryptocurrencies are getting, venture

Sinegal: There's also a spectrum: private blockchains,

investment has more or less flatlined in
2017. These new fundraising options for early stage
product projects, particularly in the decentralized
protocol space, has either diverted capital
to ICOs or perhaps displaced venture investors as
early-stage partners for these companies.
Sinegal: So, entrepreneurs are able to decentralize their

investor base, as well, due to these technologies?

Morris: Yes. But Silicon Valley has responded.
Prominent investors and successful entrepreneurs
have begun to set up access ramps for capital
to flow into this new asset class and technology.
Wu: As we discussed earlier, the barrier to
entry for the retail investor or the small home
office is already relatively low. I could tell
my grandma how to buy a cryptocurrency relatively
easily right now. But should she? That is the key
question for the average investor today.
Sinegal: And for regulators. The riskiest investments

outside the cryptocurrency space are often restricted
to, in theory, the most sophisticated investors.
That's not necessarily the case with cryptocurrencies.

Wu: To get back to the point that we started
on, it is largely driven by speculation. But
that doesn't necessarily mean it's a bad thing
to put in your portfolio. You may want to
just take an approach of putting in what you're
willing to lose. It's like, for example, investing
in your friend's startup.
Sinegal: It offers opportunity as well as risk, and diversification. Cryptocurrencies are likely not highly
correlated with a lot of other asset classes at this point.

Morris: Bubbles tend to emerge around
things that fundamentally change industry and
technology. Many companies went to zero
in the internet bubble, but the technology that
resulted is transforming the way we live,
work, and play.

It's a massive experiment, and the sample
size is growing rapidly every day.

Sinegal: There wouldn't be a gold rush if there weren't
gold somewhere.

K
Jim Sinegal is a senior equity analyst with Morningstar
Research Services.

Evan Morris

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Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2018
