If you’ve ever thought that Bitcoin is confusing, you’re certainly not alone.

Many investors have had a difficult time understanding how Bitcoin and other cryptocurrencies actually work, how they’ll be regulated, or where they’re most likely to gain adoption in the commercial world. And with significant volatility — with the price of a Bitcoin ranging from $4,107 to $12,259 during the past year alone — other investors have struggled with figuring out best how to value it.

Fortunately, we’ve brought in an expert to help us simplify the complexity!

Spencer Randall is the founder and Principal of CryptoEQ, which helps people evaluate cryptocurrencies as potential investments. He has developed a comprehensive framework, and his firm looks to help investors and businesses better understand the opportunities available in cryptocurrencies.

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In an exclusive interview with 7investing, Spencer describes how to value cryptocurrencies and which companies are a step ahead in embracing blockchains.

In our conversation, he offers a “traction score” that predicts the likelihood of four specific cryptocurrency use cases catching on during the next five years. Spencer also mentions a few brokerages where people can buy Bitcoin, his thoughts on Satoshi Nakamoto, and a few things that interested investors should be watching.

Interview timestamps:

00:00 – Introduction to CryptoEQ and simplifying cryptocurrencies

01:41 – How investors can fundamentally value what cryptocurrencies are worth

03:26 – Are Bitcoin and Ethereum in a “Consolidation Phase”?

04:54 – Are there specific companies who are ahead-of-the-curve in embracing cryptocurrencies and blockchains?

11:16 – Introduction to the “Traction Score”. How likely are certain applications for cryptocurrencies to catch on in the market?

12:10 – 1) Bitcoin for use in corporate treasuries

12:45 – 2) Bitcoin as a ‘digital gold’ and store of value

13:40 – 3) Crypto for global remittance

14:53 – 4) Crypto exchanges used as bank charters

17:53 – Satoshi Nakamoto, crypto brokerages, and updates at CryptoEQ

20:58 – Outro: What investors should be watching

Publicly-traded companies mentioned in this interview include Amazon, MicroStrategy, and Square. 7investing’s advisors and/or guests may have positions in the companies that are mentioned.

This interview was originally recorded on October 6, 2020 and was first published on October 8, 2020.

Transcript

Simon Erickson  0:00

Hello everyone and welcome to this episode of our 7investing podcast. My name is Simon Erickson. I’m founder and CEO of 7investing and today we’re going to be talking about Bitcoin, Ethereum, and other cryptocurrencies. These are things that are an enigma, and a challenge for most of us to understand, but we brought in an expert to make sense of them today. My guest is Spencer Randall. He is the co founder and principal at CryptoEQ, which is helping all of us make sense of the cryptocurrency markets. Hey Spence, thanks for joining 7investing here this morning.

Spencer Randall  0:34  

Hey, thanks having me on Simon it’s a pleasure to be here.

Simon Erickson  0:37  

We’re going to talk about a bunch of things today. One thing I’d like to ask you about would be the status quo of where we stand with cryptocurrencies, and I’ll also spot you up with some use cases to see how things are going out there. But let’s start at the 10,000 foot level first. You founded CryptoEQ, a little more than a year ago, and your stated goal is what I see to make cryptocurrency from being complex to much more simple. Can you explain to me why you founded this company and and what your goals for CryptoEQ are?

Spencer Randall  1:10  

Yeah, the founding principles, like you said, we are crypto enthusiasts at heart. We’ve been in the space for years and years, combined 15 years experience amongst the partners. And we acknowledge that crypto is very complex, it’s very difficult, very hard to wrap your head around. And so we founded CryptoEQ to make that simple to make learning about crypto simple. So we exist to simplify investing, trading and learning about cryptocurrencies, like Bitcoin and Ethereum.

Simon Erickson  1:41  

That’s great. And you know, as a stock market investor, and our audience is typically individual investors here at 7investing, we look at a lot of fundamental metrics, earnings, cash flows, anything else that flows through the the cash flow statement, the income statement, the balance sheet.  Are there similar fundamental aspects of cryptocurrencies that you can just methodically dig into and figure out what the best opportunities are out there?

Spencer Randall  2:07  

Yeah, that’s that’s a great question, Simon. So when, when you think about the playbook that works for equities, and fundamental analysis, and then you look at crypto, I think most people admit you need to rewrite the playbook and you need to write a new playbook you need to write a create a new system. Because what’s the balance sheet of Bitcoin look like? Right? What is their corporate governance model look like? Well, it’s decentralized, and there’s no CEO, and the founding team is pseudo anonymous. So it would find things anonymous. So how, how do you, how do you evaluate that team? Right? So we wrote a new system at CryptoEQ, just like our trading signals, our fundamental analysis is built from the ground up from scratch with 10 core categories. So regardless of what crypto you’re talking about, you have this common frame of reference, and our methodology and our system for evaluating the fundamentals of any given crypto.

Simon Erickson  3:08  

I think that’s fantastic. And I’ve seen comparisons to what you’re doing a CryptoEQ to what Morningstar did for years with investing, you know, kind of putting some analysis and each one of the cryptocurrencies that are out there so we can make sense of it. Spence, let’s let’s talk about what’s going on in cryptocurrency world. And this is a bit outside of my circle of competence. So I’m going to pass the ball to you to explain this to me, but you have described the last time you and I chatted, that we could be in a period of consolidation for Bitcoin and Ethereum and a couple other cryptocurrencies out there. What does that mean?

Spencer Randall  3:49  

So, it was earlier in the year that you and I connected and we were in a sideways pattern with a lot of the large cap cryptos. But you know, checking in on the market a lot change and things can move fast  in crypto. So year to date bitcoins up 50%. Year to date, Ethereum is up 170%. And when you compare that to things that I’m sure your audiences is watching daily, the S%P 500 is up 5% on the year, the NASDAQ 100 is up 29% on the year, gold’s up 25% on the year. So all these things that we kind of would watch daily when we’re trading, you know, more traditional markets. The blue chip cryptos are outperforming them by a large margin. So, you know, at CryptoEQ, our job is to watch the crypto market and I think that we’re seeing the beginning of a longer pattern and a sustained move to the upside. So I think we’ve broken out of that consolidation that you and I talked about earlier in the year.

Simon Erickson  4:54

And are we starting to see companies embrace and adopt cryptocurrencies? It’s seems like the headlines tend to focus around Warren Buffett calling it rat poison. Right? Or Ray Dalio calling it a speculative bubble. But then you’ve got other people like Jack Dorsey, building cryptocurrency trading or even app transactions directly into Cash App, right, that he’s using for Square. So I mean, are there kind of the companies that are the innovators out there that are really all in and embracing this? And then another group of companies that seems like they’re resisting this move to crypto?

Spencer Randall  5:29

Yeah, I think it’s a very gradual process. You know, you mentioned some gotcha headlines from some prolific investors. Everyone uses me mentioned I have immense amount respect for. I think the closer crypto is to a thought leaders area of competency, the faster they get it. So when you talk about people like Buffett and Dalio, I think it may take longer for them to fully appreciate the value proposition of cryptocurrencies, if they ever really do come around, right?  It may just not be for them. But when you mentioned tech investors like Dorsey or Peter Thiel, some of the early thought leaders to really embrace this technology, and quickly either add positions their portfolio of actual crypto companies or integrate it into their businesses and their existing businesses. So I think you’ve got thought leaders on both sides of the fence even today. But the gradual kind of trend that I’m seeing is, and it took me years to fully wrap my head around the value proposition of Bitcoin. Once people get it, the more they learn about it, the more conviction and confidence they have in in the space. So one of the really big recent headlines is Bitcoin and corporate treasuries. So in the, you know, economic uncertainty of today’s climate. And when you think through, okay, what do you do with cash, right? So they’ve got, you have people that have, you know, immense amount of cash in their corporate treasuries, and they don’t want to leave all that as in cash. So where could they allocate it? Well, gold gold’s been attractive, right? That’s kind of a nice default play. But what else could you do? And so you have people like Michael Saylor, the CEO of MicroStrategy, the ticker for everyone out there in the audience’s MSTR.  They allocated $425 million in cash and the corporate treasuries to Bitcoin. So I think of them as a leader in terms of how you think of your corporate treasury, and now Michael, Saylor is one of the biggest Bitcoin Bulls in our industry. So the more as time goes on, I think well, more people like Peter Thiel, like Jack Dorsey, like Michael Saylor. And there’s the list goes on and on, that continue to help educate the public about what Bitcoin and cryptocurrencies can do.

Simon Erickson  7:53

I spoke with Jeremy Almond earlier this year, he’s the CEO of a company called Paystand out in California, he calls he calls blockchains, the new cloud, cloud 2.0. He sees this as a platform. And even even the cloud was kind of a platform that built upon e commerce too, right?  So he sees comparisons between what Amazon did with e commerce where all of a sudden, these tools are out there for the right company to take advantage of innovate on and just plow ahead of its competitors by using these new tools. Do you think there are a handful of companies that are the early leaders in adopting blockchains or even individual cryptocurrencies that puts them a step ahead of their competitors right now?

Spencer Randall  8:38

Yes, yes. It’s another great point. I think that it’ll get to a point where you have to integrate blockchains and cryptocurrencies, in some means to stay competitive, because it’s so disruptive. When you think about payment processors, you know, Square was one of the early adopters to integrate Bitcoin. PayPal has now followed. When you think about enterprise blockchains, I think that’s a little bit of a difference with the payments use case and exchanging value peer to peer, or b2b. I think we’re further along, I think with enterprise blockchains, we still have a lot of infrastructure to build. It’s a very competitive spaces, you know, smart contract. infrastructure is very competitive. There’s a number of projects that are viable solutions at scale. Ethereum is the one that has the most network effects built around it. It’s in the crypto world, it’s a household name. It’s got the most developer activity. It’s even taught in curriculums now across the world, as a as the default blockchain language solidity, the default language to code and if you’re going to develop blockchains Now, there’s a lot of network effects but they’re working very well. In releasing a scalable Ethereum 2.0. So, right now, the bottleneck with enterprise blockchains is the leader in the infrastructure, which is Ethereum has immense challenges in scaling to scale fast because it’s got so much attention and so much use that the network is bottlenecked with transaction fees, what are called gas fees. So similar to the bottleneck we experienced in Bitcoin when people wanted to trade it up in 2017. And transaction fees are really high. Ethereum is now experiencing that because there’s so much attention use. And so the option after that is, well, it can grow and it can solve those problems, or something else can can outmaneuver it. And that’s kind of the question that is posed to the market right now is, is an Ethereum competitor going to move in and take some of that market share for enterprise blockchains and smart contract technology? Or will Ethereum 2.0 grow and scale and solve the scaling issues and continue to be the dominant smart contract language? That’s kind of the the narrative that’s unfolding in the crypto world that we’re watching very closely it CryptoEQ,

Simon Erickson  11:15  

Yes, I can imagine that, Spence, and a a lot of moving parts to every one of those narratives. Just to have some fun here with the interview. What I’d like to do is I’d like to spot you up with four use cases for cryptocurrencies, not necessarily Bitcoin specific, not necessarily Ethereum specific, but just the overall use case. And I’d like you to give each of these a traction score. And I don’t have a better name for that, I apologize. But the idea is a 1 to 10 ranking of how likely and how important this will be within the next five years of actually gaining adoption and gaining traction. So a score of one is this is a this is there was no way this is possibly going to happen as a pie in the sky idea that no one’s going to actually get behind, a 10 as an absolutely, this will definitely catch on. We’re going to start seeing this everywhere. Does that sound fair game Spencer? Do you understand the rules of the game?

Spencer Randall  12:08

Sounds like a fun game.

Simon Erickson  12:09  

Okay, first and foremost, the first use case is exactly the one that you mentioned earlier, which is Bitcoin being used in corporate treasuries, where companies especially global companies are putting their cash into cryptocurrencies.

Spencer Randall  12:23  

And the time horizon is five years.

Simon Erickson  12:25  

Five years. Yep. Five years for every one of these. Yep.

Spencer Randall  12:28  

And it’s what’s already happened. So I give it a nine I think. I think that more people will follow MicroStrategy in that approach, especially in the next two years.

Simon Erickson  12:41  

Okay, great!  Nine for corporate treasuries. Second use cases people using Bitcoin as a digital gold as a store of value.

Spencer Randall  12:51  

Yeah, so more on the retail front, getting away from corporate treasuries?Yeah, I would say I give that an eight.It just very quickly, comparing you know, Bitcoin to gold, you know, I would say Bitcoin is more portable, more verifiable, or divisible, more scarce. And it’s also censorship resistant. So these kind of like staple properties of money, Bitcoin does out compete gold as sound money. There are a few things that it gives up ground on to gold, namely, durability. It’s not it’s digital, it’s not physical, but in most areas, I think Bitcoin is better money than gold.

Simon Erickson  13:41  

Okay, so so to two solid hits there one for corporate treasuries, one for a store of value and the retail side of it. Let’s let’s think global here, you know, how about there’s a lot of foreign exchange and fees that are that are being applied to people just trying to transact or send money in different currencies around the world? What would be your traction score for using cryptocurrencies for global remittance?

Spencer Randall  14:11  

There’s, I mean, there’s projects like XRP, where they’re founded for global remittance. I would say that a five because the time horizon. We haven’t seen as much traction on that front. I haven’t seen a digital asset merge that can handle the throughput of something like a Visa network, or the legacy swift system or all of the payment processing that the entrenched remittances remittance companies do. I haven’t seen as much traction there personally. So but that is five.

Simon Erickson  14:51  

Okay, fair enough. Five for that one. In my last use case for you. This was something I thought was rather interesting was a company called Kraken was just introduced as the first cryptocurrency exchange to actually secure a bank charter, where you actually have access to federal payments infrastructure and can more kind of seamlessly integrate with a lot of the existing infrastructure that’s out there. I believe that Kraken is now have its charter to operate in Wyoming and actually conduct transactions. Spence, what do you think about cryptocurrency exchanges, gaining bank charters in the future? Next five years?

Spencer Randall  15:28  

Depending on the the crypto exchange, I think it’s great for the traction score. And I think that you’ll see other exchanges follow Kraken. And so I’d give that a 10. I think that I wouldn’t be surprised if there’s another major exchange that obtains a bank charter this year. Yeah, I think in order to stay competitive with Kraken, you’d, you’d want too, Right?  To Coinbase, Gemini, a number of other great exchanges. I wouldn’t want Kraken to have too much of a head start there. If I were, if I were in their shoes…

Simon Erickson  16:09  

Especially considering the switching costs and the stickiness of banks that we’ve gotten used to over the years, right?

Spencer Randall  16:14  

Yeah. I mean, think about if you’re, if you’re a if you like to trade and invest with Kraken, think of how nice it is that you can have your potentially have your Fiat and your crypto insured. That part still isn’t going to be FDIC insured. That part’s still up in the air. I think that it’s possible, whether it’s offered out the gate is TBD. So I’m watching that closely as well.

Simon Erickson  16:43  

Is that going to be a key part of the thesis for transactions that people may be right now don’t like the volatility of holding Bitcoin or Ethereum because they could go up and down in value so much versus cash, which is not going to.  If you get an insurance or an FDIC insurance for something like that, does that change the game of using crypto for everyday transactions?

Spencer Randall  17:08  

I think, you know, the fact that like close family and friends are now asking me about it kind of shows that the market sentiment shifting, you know, I don’t I don’t push crypto on anybody. But if people ask questions. Absolutely. And I’d like to talk I love talking about this stuff. So I’ve got family and friends that want to have that conversation now. And you know, the time last year they were hard no. So I think that the more you see kind of what makes you comfortable about the traditional financial system, step into the crypto world, the more you’ll have a bridge to go between the crypto world and the traditional world. I think insurance helps people feel more comfortable with the downside risk.

Simon Erickson  17:54  

Makes a lot of sense. I just got a couple more for you here Spence. The first one is I would really like to hear your thoughts on who is or who are Satoshi Nakamoto

Spencer Randall  18:06  

He she or they are brilliant minds, is a brilliant mind. I don’t spend a whole lot of time thinking about is the mystery. More so appreciating their gifts to world. There are people that really do investigate some amount of time trying to sort that out and I haven’t really ever found it fascinating. I like thinking about what’s possible now that they’ve given us this awesome gift.

Simon Erickson  18:36  

Yeah, fair enough spends even though I personally do find it fascinating and I would love to have answers on who Bitcoin’s anonymous founder or founders truly are and where in the world they actually are these days.

Spencer Randall  18:48  

I wish I had answers for you Simon.  I true I truthfully do not.

Simon Erickson  18:51  

that’s okay Spence, your identity is safe with me. You can remain anonymous for the time being that’s totally fine. Another question is brokerages. How is Do you have any brokerages that you recommend for people that do want to actually buy or sell Bitcoin? I don’t know if you promote any I don’t want to make it to,oto political. But do you know of any that are commonly used that people get access to this.

Spencer Randall  19:13  

Yeah. CryptoEQ we list three exchanges as affiliates. So there’s three exchanges that we trust, and that’s Crackin, Coinbase and Gemini. So all the founders have used these exchanges and would recommend their services. We don’t take any kickbacks outside of affiliate fees. So it’s not a paid relationship. It’s just a genuine recommendation.

Simon Erickson  19:40  

Great. Yeah. Thank you for those and I saw that you also just recently recently upgraded your own site you’re at version four now and had some some new features that you added. What are you excited about you guys are working on right now?

Spencer Randall  19:52  

Yeah, the mantra is always be launching right. Startups you got to be agile and fast and so we’ve we’ve launched four versions of the site. Version four launch last week, we’re really excited about what version four is we’ve built out a landing page that really explains the value proposition of each individual aspect of our services. We also launched our advertising services to complement our consulting services. And from virgin to an honor, we’ve always had our subscription that’s really been our bread and butter. So we provide a lot of free content, a lot of research, a lot of straightforward market insights, right out the gate, completely free to all users. But then there’s other tools that we offer as upsells. And so we really just added on to as a user, what you can do is take the next step in your journey. So we’ve always had that strong foundation. But we’ve layered on more opportunities for our users, customers and clients. As we’ve grown as a as we’ve launched more versions of the site.

Simon Erickson  20:58  

That’s fantastic Spence. Now other than us signing up for CryptoEQ, and getting access to your brilliant mind and seeing what’s really going on. In cryptocurrency world, our audience is mostly individual investors, we look more at stock markets and publicly traded companies, but we’re interested in what’s going on out there. It certainly impacts the entire world and markets everywhere that this is gaining traction. What are a couple of things that you think that we should be paying attention to that’s going on with cryptocurrencies?

Spencer Randall  21:31  

I wouldn’t recommend this as a first step. But if you if you are familiar with Bitcoin and Ethereum, or you develop some familiarity with it, reading more about decentralized finance, and reading more about defy would behoove anyone that’s ready for a more advanced, more advanced exposure to cryptocurrencies and blockchains. The surprise finances, the infrastructure has been developing for years, but it really gained a lot of public attention this year. And to me, it really kind of mirrors what happened in 2017 with the initial coin offerings. And so with that exuberance you had, like Ethereum was was one of the first ICO’s, right? So you had really great things come out of it like Ethereum, right Ethereum is ICO believes in 2015 maybe 2016 but then you also had a bunch of things follow that weren’t necessarily here to stay, and so I think that’s happening with defy there’s going to be these great defy projects, there’s going to be handful of great defy projects, there’s going to be a much that may not be here to stay and may not may not be lasting. So identifying those, those winners early is a challenge. But can that mean the upside is incredible? Right? I mean, you could do 100 x if you find the right defy project. Very similar to ICO’s. So for if you’re looking for asymmetric risks and outside outsized returns, defy something to be watching and something to learn about.

Simon Erickson  23:03  

Well, thank you very much again, Spencer Randall. He’s the co founder and principal of CryptoEQ. Their website is cryptoeq.io. I have checked it out several times. I’ve learned quite a bit there. And Spencer, thanks very much for spending the time here with 7investing today.

Spencer Randall  23:20  

Thank you, Simon. Thanks for having us on.

Simon Erickson  23:22  

And thank you for tuning in to this episode. We are here to empower you to invest in your future. We are 7investing.