The winds of change have grown to gale force. Bitcoin mania set in towards the end of 2017, culminating with the trading of bitcoin futures contracts. Prices for bitcoin came close to $20,000. The hysteria settled down a bit and the buzzwords of blockchain, cryptocurrency and bitcoin slowly eased out of the headlines as bitcoin prices came back down to Earth. Until now...
The hype has returned. In a world where Central Banks have opened the spigots and quantitative easing has become the norm, crypto is taking on a new role. The next phase in bitcoin is the legitimization of the asset class and the spread of blockchain technology.
Behind the market’s recent headlines about COVID-related shutdowns and fallout from elections, the land grab in the blockchain world has begun. It started as a gimmick, with companies changing their names to attract new investors. Now, it has evolved to well-established industries using the blockchain technology to cut costs, improve margins and boost their bottom lines. Huge corporations like Walmart, UnitedHealth, and BMW have been adapting blockchain technology to suit their needs. And it’s more than just concepts and budding partnerships. Real-world applications for blockchain are already making huge changes in industries across the world. The revolution is just beginning.
Publicly traded companies here in the U.S. are beginning to load up bitcoin reserves on their balance sheets. Yes, you read that correctly. Companies and shareholders alike are making the conscious decision to diversify their cash holdings by adding cryptocurrency. We are not talking about a hundred bucks here or there, we are talking billions of dollars. In total, publicly traded companies are holding nearly $7 billion in bitcoin. What happens if this becomes standard practice across all publicly traded companies?
In this article, I’m going to make sure you’re not going to get hurt chasing fake blockchain companies and instead, steer you towards investment ideas which are still fundamentally sound and built around real, sustainable businesses. Legitimization is the new buzzword surrounding bitcoin nowadays. It’s got the power to take everyday companies and turn them into the next big thing.
When looking at the cryptocurrency ecosystem, you find that there are plenty of ways to invest in the blockchain. We can break down these stocks into five main categories.
1) The “Picks and Axes” and Miners
During the gold rush, the ones who really got rich were the ones selling the picks and axes. That is, the companies which provided the tools for the speculators to go out and try to find their fortunes. In the cryptocurrency world, this refers to the companies which make the chips and hardware used for mining operations. Examples would include a host of semiconductor companies.
Then there are the miners themselves. Miners confirm transactions from node to node by solving the cryptographic problem and are then rewarded in units of the cryptocurrency. Already we are seeing publicly traded companies which “mine” cryptocurrency. These companies mine the currency then immediately sell them on the open market and pass through the gains to shareholders. Think of them as you would a pipeline company in the energy sector. These companies are small now, but could become much larger in time.
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2) Cloud Infrastructure
No other industry has been as dependent on the cloud for its development as blockchain has. The need to distribute a ledger across the world, with no centralized ownership or authority overseeing transactions plays into the strengths of the cloud. However, the cloud is still at risk here, as blockchain technology can distribute storage across the globe, fighting the centralized nature of traditional cloud services. Still, this industry can adapt the technology to benefit.
3) Payment Processing and Lending
Among the most disruptive industries for blockchain is payment processing. Rather than your traditional financial intermediary, blockchain technology allows for a distributed, open, public ledger where transactions are confirmed by other nodes in the chain for a fee that’s much smaller than your typical fees coming from more traditional processors.
Blockchain tech is also perfect for lending, allowing a lender to spread their risk across thousands of loans in an instant, no matter the size of the lender. We are just at the tip of the iceberg in this arena.
4) Investors, Business Development Companies and Consulting
There will be a wave of companies looking for ways to incorporate blockchain technology into their existing businesses. Already, large consulting companies are beginning to offer services helping companies to integrate the new tech. Gartner has even developed a site dedicated to this purpose.
Some publicly traded companies are acting as incubators for other budding cryptocurrencies. There are currently over 6,000 cryptocurrencies in the world with a total market cap in excess of $461 billion. The total worldwide crypto market volume exceeds $110 billion daily. These investors and business development companies invest in promising crypto companies before they hit the mainstream.
5) Futures and ETFs
The legitimization of Bitcoin continues as futures contracts and options on these contracts have started trading on a large exchange in the U.S. Officially, the SEC has yet to approve a bitcoin ETF, though several applications have been processed. In the meantime, investors have been using Grayscale Investments GBTC as proxy as it is the only publicly traded entity on a major U.S. exchange which owns bitcoin alone explicitly. As cryptocurrency continues to become larger, it matures even more as an asset class.
There's no doubt that blockchain will have a tremendous impact on almost every industry you can think of. In fact, experts predict that the space could soar +1,300% to $40 billion by 2023.
Just like the early days of the internet, some companies stand to deliver monster gains for investors. Others will be a flash in the pan.
That's why I invite you to look into our portfolio service Blockchain Innovators. We cut through the gimmicks and hype to uncover little-known but fundamentally strong companies driving the blockchain revolution.
We're aiming for explosive profit potential and long-term sustained growth. Right now, six of our positions have already generated triple-digit returns, including gains of +214%, +395%, +410%.¹ I believe these stocks still have plenty of upside left. Plus, I'm preparing to add another exciting stocks with similar profit potential on Monday.
Now is an ideal time to capitalize on this surging industry.
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Dave Bartosiak is Zacks' resident technical and momentum expert. A successful early crypto investor, he selects stocks and delivers exclusive commentary for our newest portfolio, Blockchain Innovators.
¹ As of 11/09/2020. The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position