Mark Cuban still believes in crypto despite FTX collapse—here’s why
Although the implosion of one of the world's largest cryptocurrency exchanges has left many investors shaken, billionaire Mark Cuban still believes in crypto.
Cuban has remained invested in crypto because he believes in smart contracts, one of the key underlying technologies that allow crypto transactions to be made, he explained on Twitter on Nov. 13.
Essentially, a smart contract is a computer program that is embedded into a blockchain network. They operate according to "if/then" commands; if X, then execute Y.
For a simple example of how a smart contract works, think of a vending machine. Typically, you make your selection, insert the required amount of money and receive the item. The "smart contract" within the machine is coded to dispense the selected item after the payment is made.
Cuban believes smart contracts will have a significant impact in creating valuable applications that have utility for everyone.
In Cuban's view, a token's value is derived from which applications it can be used for and how useful those applications are for users, he says on Twitter.
But what's still needed is an application that is useful to people both within and outside of the crypto world, one that's helpful enough that people would be willing to learn how to use cryptocurrency in order to use the application.
There are still downsides to crypto
Despite Cuban's bullish outlook on crypto, he has a sharp critique of former FTX CEO Sam Bankman-Fried.
"With FTX now — that's somebody running a company that's just dumb as f--- greedy," Cuban said while speaking at a Sports Business Journal conference on Nov. 11.
FTX's collapse is expected to have a ripple effect throughout the crypto industry. Multicoin Capital, one of the top crypto venture firms that has assets tied to FTX, told investors it expects many trading firms will be wiped out and shut down in coming weeks amid the fallout.
However, Cuban doesn't see the recent events shaking up the crypto market as "crypto blowups," but rather "banking blowups," he recently tweeted. That includes lending funds to the wrong entity.
Cuban is a longtime cryptocurrency investor. Over the years, he's invested in Ethereum and other various digital coins, NFTs and many blockchain companies.
In fact, "80% of the investments that I make that are not on 'Shark Tank' are in or around cryptocurrencies," he said during an episode of "The Problem With Jon Stewart" podcast on Jan. 12.
However, some finance experts advise against investing too much in crypto. "Cryptocurrencies are a confidence game par excellence," James Royal, principal reporter at Bankrate, tells CNBC Make It.
"With the exception of so-called stablecoins, crypto prices are supported entirely by belief in their future, not by any fundamental underpinning, such as assets or cash flow," Royal says.
It's important to note that cryptocurrency is a highly volatile asset that's subject to erratic fluctuations in value. Since there's no guarantee you'll earn a profit on your investment, financial experts typically advise that you don't invest more than you're willing to potentially lose.
Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."