The Smartest Way to Buy Blockchain Stocks
The general public finally came to know cryptocurrency during its latest boom cycle in December 2017. Bitcoin prices had surged from under $2,000 in July 2017 to nearly $20,000. The world was introduced to the crypto millionaire, the millennial nerd who rolled the dice on Bitcoin early and now roamed the streets in a Lamborghini. Everybody wanted in on the action, but when the bubble burst, the carnage lined the streets.
You don't have to have a gambler’s risk tolerance or be a cryptocurrency expert to profit from the boom in Bitcoin, Ethereum, Litecoin and others. You don't even have to believe in the long-term sustainability of any of these coins. You just have to recognize the game and figure out a way to profit from the underlying technology. That underlying technology, which powers every cryptocurrency on Earth, is the blockchain.
If you've been paying attention to the headlines, you'll see that central banks and major retail banks alike have changed their tune about cryptocurrencies. Initially, they scoffed and called them irrelevant. But recently, the discussion has shifted and now they are acknowledging the threat cryptocurrencies cause to their businesses. What they're really saying is that blockchain is revolutionizing the way we account for data.
Just look at the recent activity on Capitol Hill. Facebook’s proposed Libra coin is making a big splash. A few months ago, Facebook focusing on a crypto coin would have been a non-event. Nowadays, it’s not a pie-in-the-sky idea, it’s a major financial event and could pose a significant threat to traditional payments businesses.
What is the Blockchain?
In the digital world, a block is a digital list of records, acting as a ledger that can contain information of any kind. When these blocks are linked together, they are secured by cryptography to form the blockchain. This blockchain is an unforgeable record of all the transactions that is replicated on every computer on the network. If information in a new block can't be verified by all the other blocks in the chain, it is discarded. In the case of the top cryptocurrencies, a currency's network consists of millions and millions of computers all over the world. This makes it unhackable, as a hacker would need to hack all that computing power simultaneously, a seemingly impossible task.
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10X Bigger than the Internet
Zacks targets big gains from the innovative businesses behind blockchain – the emerging "Internet of Money." As this technology grows an estimated +8,500% by 2024, shareholders in these companies could make life-changing gains without speculating on volatile cryptocurrencies.
According to government sources, blockchain technology is “10 times more valuable than the internet.” And just like the early days of internet stocks, the profit potential is tremendous. We’re accepting a limited number of new investors to see our top picks to tap this phenomenon, but the door closes Sunday, September 29.
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I already know I've lost some people, but please stay with me. At this point the question within this topic is typically: What does blockchain have to do with currency? Everything. But to understand we have to separate our thought of cryptos from traditional fiat currency. While fiat currency is used to buy cryptocurrency, once bought, cryptos stand on their own. In addition, the smart contract (more on this later) aspect allows cryptos to be much more than an exchange of cash, they are an exchange of value. In a sense, these currencies are the "Internet of Value".
To simplify, the blockchain is a public registry of assets and transactions that tells us who owns what. These transactions are often referred to as smart contracts, as they are recording a contract between two people, whether it be a transfer of currency, or a good or service.
You can see how this new innovation could be disruptive to traditional businesses out there. Rather than lament this potential disruption, you are in the unique position to profit from it. How you ask? By investing in the various areas of the market where the blockchain is making noise. There are several different angles here.
The "Picks and Axes": 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.
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.
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. Companies which offer cloud-based hosting may suffer, while those which help facilitate this decentralized network will benefit greatly.
Payment Processing: 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.
Lending: We are just at the tip of the iceberg here on lending. Blockchain tech is perfect for lending, allowing lenders to spread their risk across thousands of loans in an instant, no matter the size of the lender.
Trading Floors: The legitimization of bitcoin continues as futures contracts have started trading on two large exchanges in the US.
Miners: The miners are the most important part of any blockchain and likely the most misunderstood. 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 companies which "mine" cryptocurrency publicly traded. 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.
Investors/BDC: Some publicly traded companies are acting as incubators for other budding cryptocurrencies. We talk bitcoin a lot but there are over 1,300 other cryptocurrencies in the world. These investors and business development companies invest in promising crypto companies before they hit the mainstream.
ETFs: Already there are ETFs which buy stocks with blockchain exposure, however, soon there will be officially regulated ETFs for bitcoin and Ethereum. These ETFs will move dollar for dollar with an index, not trade at huge premiums to the underlying cryptocurrency like the ones available on the market today.
There are many more companies on the way but how will you know how to separate the pretenders from the contenders? Which of these emerging companies will be built on solid technology and which will be gimmicks? Just like the Dot Com Bubble brought with it several names which added ".com" to their names to get in on the action, companies are adding "Blockchain" to their names, some in a very unscrupulous fashion.
There are several ways to play the cryptocurrency boom without exposing yourself to the same downside volatility. By spreading your investment across several aspects of the blockchain, diversification can help smooth your returns. Add in the proven strength of the Zacks Rank and our proprietary system of investing in companies with increasing earnings estimates and you have a potent one-two punch.
The Time to Start Is Now
At Zacks, we've been watching the blockchain phenomenon very closely. This space is projected to skyrocket from $706 million in 2017 to $60 billion by 2024.
Many investors have already gotten very rich. But in my view, blockchain's most profitable days are still ahead of us.
To get in to this once-in-a-lifetime opportunity, you may want to look into our portfolio, Zacks Blockchain Innovators.
Right now, we're holding a selection stocks to ride the blockchain boom from different angles - from supplying chips and hardware to fintech firms and consulting services. We're aiming for big gains from solid companies.
Check out Blockchain Innovators today and you can be among the first to see my Special Report, The Great Disruption: Blockchain in 2019 & Beyond. In this report, you'll gain a better understanding of what blockchain is, how it's transforming so many industries (with specific examples) and how the revolution is likely to impact you as an investor.
I suggest that you look into it right away. Entry to this service will be closed Sunday, September 29.
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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 Blockchain Innovators.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.