As with any investment, your capital is at risk.
One of the things that drew me to put money in Baillie Gifford’s portfolios – and later to join the firm – was the spirit of rebellion surrounding the firm’s growth investments. To me, Baillie Gifford’s investment approach represents a revolt against suboptimal and outmoded ways of doing things.
Our portfolio companies operate across diverse growth trends, from AI to the transport revolution to novel forms of healthcare. Their shared tendency to invest in new and better approaches could make them exceptionally valuable to their customers and, ultimately, shareholders. This aligns them with the long history of human progress: a journey towards a better way of doing things, leveraging the leading ideas of the age.
The great crypto paradigm shift
Many believe ‘crypto’ is part of that story of progress, with potential to write a whole new chapter.
Traditional money is government-issued. You can use it in hard or digital form. Money supply is centrally controlled, as is the cost of borrowing. Together these levers comprise ‘monetary policy,’ a macroeconomic toolbox not without detractors. Traditional money can also be traced and frozen by authorities.
Crypto offers a paradigm shift. It is a type of digital money that, with a few exceptions, is not controlled by a central bank or government.
Much of the crypto world, notably Bitcoin, takes the form of decentralized currency, the governance of which is democratized. All participants in the system have equal rights and responsibilities.
This system runs on a ‘blockchain ledger’, a peer-to-peer digital record book that tracks all transactions securely and transparently.
Each time a ‘block’ – a group of transactions – is added to the blockchain, the network issues a limited amount of currency. Anyone with the knowhow and resources can build a block: the process is known as ‘mining’. They can then claim the block reward and can own and spend their new cryptocurrency.
The mysterious birth of a financial revolution
Few growth themes have had such intriguing beginnings. The founding myth centers around the possibly pseudonymous creator, Satoshi Nakamoto, who, in 2008, published the Bitcoin white paper. This document outlined a revolutionary peer-to-peer electronic cash system, promising decentralization and financial autonomy.
In 2009, Nakamoto mined the first Bitcoin block, known as the Genesis Block, in which he embedded a message about bank bailouts, symbolizing distrust of traditional finance. The alluring mystique around Nakamoto and cryptocurrency’s origins helped spark a global movement.
The defining quality of crypto is that one’s right to participate in the system is not controlled by anyone else. This freedom appeals to many and has given crypto increasing prominence as a form of currency and an asset class.
The defining quality of crypto is that your participation is not controlled by anyone else
By the end of 2024, 420 million people globally owned some form of cryptocurrency, with total market value nearing $4 trillion. A growing number of companies will accept crypto payments for at least some transactions, including Ferrari and SpaceX. There are thousands of cryptocurrencies in existence, with prominent examples including Bitcoin, Ethereum, Binance Coin and Solana.
The re-election of President Trump looked like a positive for the industry. He has said he wants to make America the crypto capital of the planet, with the greatest strategic reserve of Bitcoin.
So, whether or not you’re compelled by the grand underpinning notion of crypto, its growth seems worth considering. It’s in that spirit that Baillie Gifford has some limited exposure.
Selling picks and shovels in a gold rush
A small part of our portfolio is invested in Blockchain.com, which we might call a ‘picks and shovels’ business. It’s not a cryptocurrency itself but it provides tools for others seeking to participate in crypto. Blockchain.com’s digital platform provides ways to buy, hold and use cryptocurrency, “making it possible for people to be part of the crypto ecosystem,” as co-founder and CEO Peter Smith told us recently.
Blockchain.com is one of the world’s oldest and most trusted crypto platforms, with over 90 million wallets – the digital tools that allow users to store, manage and transact cryptocurrencies – and 40 million verified users. It has facilitated over $1 trillion in transactions and has strong investor backing. It has shown rapid revenue growth, approximately 1,500% over four years, via products that include:
- Wallet: a digital tool for storing, sending and receiving cryptocurrencies such as Bitcoin
- Exchange: a platform to buy, sell and trade cryptocurrencies
- Explorer: a tool to view details about transactions and addresses on the blockchain
- Institutional facilities: services for businesses and professional investors, including crypto custody, trading and brokerage
Baillie Gifford also invests in digital payments company Stripe, which provides infrastructure and applications for online payments and business operations, partnering with online leaders to enhance capabilities and navigate global networks. Stripe processed $1.4 trillion in payments in 2024, a 38% increase from the previous year. That’s about 1.3% of global GDP.
Stripe has ventured into ‘stablecoins’ – cryptocurrencies pegged to stable assets like the US dollar – by acquiring Bridge Network for $1.1 billion, aiming to enhance its global payment capabilities. This could slash costs and streamline cross-border transactions, making digital payments faster and more efficient.
These two holdings allow us to remain agnostic about individual cryptocurrencies – notoriously volatile and hard to value – while exposing us to a potentially revolutionary development. They also offer fantastic opportunities to learn more about crypto.
Facing up to the ethical challenges
And there’s much to learn, not least the ethical challenges it presents. These include crypto’s potential for:
- facilitating illicit activities owing to anonymity
- environmental impact from energy-intensive mining
- regulatory evasion
- promoting financial instability
Such issues threaten security, sustainability and equitable access in the rapidly evolving digital economy. Our decision-making framework – how we identify and own exceptional growth companies – includes rigorous checks on such ‘social licence to operate’ factors.
There’s also the volatility. I recently heard investing in crypto referred to as like being three times leveraged on the Nasdaq. Broadly, when that tech stock index has gone up, crypto has sometimes gone up faster. When it’s fallen, crypto has often suffered worse.
Hence the importance of finding companies that are earning trust. In an industry full of get-rich-quick scams, the value of trust can’t be overstated.
As Blockchain.com’s CEO Peter Smith told us, the firm has an unblemished record of honoring its deals. “One of the things that excites me is I feel we’ve proven to the market that we can be trusted. I think that’s probably one of the most valuable assets you can own … in my 10-plus years as CEO, we’ve never broken a trade.”
Questioning the value of cryptocurrency is like asking ‘what is trust worth?’. Money is merely an instance of everyone agreeing to believe in an abstraction, that is, a system of storing and exchanging value.
There is growing demand in many quarters for that system to be decentralized and democratized. The potential is huge. With the right exposure – in our case, backing those selling picks and shovels in a gold rush – the upside might be profound.
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