The winds of change have grown to gale force. Bitcoin mania set in towards the end of last year, culminating with the trading of bitcoin futures contracts. The hysteria settled down a bit and the buzzwords of blockchain, cryptocurrency and bitcoin slowly eased out of the headlines. Until now...
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 the rough month of October and trade wars with China, the land grab in the blockchain world has begun. It’s not companies changing their names to attract new investors, its well-established industries using the 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. Even the famed Goldman Sachs has announced they will have a cryptocurrency trading desk. When Goldman gives its stamp of approval, it means you have arrived. Now the Chicago Board of Options Exchange has been laying the foundation for another cryptocurrency-based futures contract, this time with Ethereum. The revolution is just beginning.
One of the main arguments against crypto and bitcoin was the volatility of the prices. If you’ve been following crypto prices recently, you’ll see that bitcoin has settled down nicely around $6,300. This is providing some much-needed stability.
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 a number of different 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 1,600 other cryptocurrencies in the world. 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 have started trading on two large exchanges in the US. Soon there will also be officially regulated ETFs for Bitcoin and Ethereum. In the meantime, investors have been using GBTC as proxy. As mentioned before, Goldman Sachs is set to open its trading desk soon, adding further legitimacy to cryptocurrencies as an asset class.
There’s no doubt that blockchain will have a tremendous impact on almost every industry you can think of. And as exciting (if nerve-wracking) as Bitcoin’s rise was in 2017, I see even greater potential for blockchain in the months and years ahead. In fact, experts predict that the space could soar +8,500% by 2024.
Just like the early days of the internet, some companies stand to make massive gains. Others won’t stand the test of time. That’s why I invite you to look into our newest portfolio service Blockchain Innovators.
We cut through the gimmicks and dig beneath the hyper-volatile currencies to uncover strong, often little-known companies driving blockchain technology.
Right now, we’re holding a selection of stocks from the groups I listed above. We’re aiming for big gains without speculating on cryptocurrencies. Plus, I'm preparing to add more stocks with explosive growth potential, and only a limited number of investors will share them.
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Plus, as a bonus, you can also download my newly updated Special Report, The Great Disruption: Blockchain in 2019 & Beyond. It shows how blockchain technology could impact your portfolio in the very near future and spotlights 4 transforming industries that every investor should watch closely.
Please note that only a limited number of Zacks members can be allowed to take part. Entry to this service will close again Sunday, November 11, so I suggest that you look into it right away.
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Wishing you great financial success,
Dave 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.