by Jamie Holmes
Investing in cryptocurrencies, with their incumbent wild price fluctuations, carries the potential for high returns but also comes with high risk. Instead of directly holding currencies like Bitcoin or Ether, for example, a different strategy is to invest in companies that are at the forefront of utilizing blockchain technology. Moreover, upcoming ETF’s (Exchange-Traded Funds) also provide a regulated and safer way of investing in Bitcoin without having to worry about cold storage, wallets and other technical aspects blockchain-based currencies.
Emerging “blockchain stocks”
There are several blockchain companies that are already listed on stock exchanges. This trend is set to continue as more and more firms leverage the technology to disrupt industries from media, to finance, to real estate. One example is DigitalX (DCC: ASX) on the Australian Stock Exchange. DigitalX provides two key products/services: AirPocket, a global peer-to-peer remittance product; and DigitalX Direct, which provides software for the institutional market and providing liquidity to participants. The company previously earned revenue from bitcoin mining and trading activities. The stock is up just over 7 percent on the year so far and has reached a high of A$ 0.21 in February, illustrated below.
Another example, BTL Group Ltd. (BTL: TSXV) islisted on the Toronto Stock Venture Exchange. The company provides consultative services with regards to the blockchain, helping companies to understand and obtain the benefits. Their target market has a huge potential for growth as more and more companies switch to blockchains to meet their needs. Their stock is up just over 50 percent over this year so far, illustrated below.
The Australian Securities Exchange itself has previously stated its intention to use blockchain technology to improve settlements and is traded under ASX FPO. The growth in the stock exchange value has continued to grow over the long term as displayed below. Since the exchange is heavily investing in blockchain technology and will become a major leader in the space, investing in the ASX PRO is like investing in blockchain technology by proxy.
ASX chief executive, Elmer Funke Kupper, has said previously that, “At the ASX we realise we will lose a little bit to begin with, as blockchain could take $5 billion out of the cost of buying shares, but we’re looking to the future. We’re unleashing innovation, competition and better services across the value chain.”
As the exchange demonstrates gains from this technology over the long -term, people’s perception of the company’s worth will rise, along with the value the company raising over time. The rise of the ASX PRO, shown below, could be partially attributed to its willingness to innovate and apply blockchains to their business.
ETF’s also represent an alternative investment vehicle
Gemini and SolidX have both submitted their respective filings to the Securities and Exchanges Commission (SEC) in the U.S. for a Bitcoin ETF; an Exchange Traded Fund is a pooled investment vehicle with shares that can be bought or sold throughout the day on a stock exchange at a market-determined price. Since the early 2000s, ETFs have seen a surge in popularity and are regulated by the SEC.
These instruments have also been favored by investors in recent years due to their tax efficiency, since capital gains taxes are not realised until ETF shares are sold, and their exposure allows markets that are difficult to access or small to be reached. It will also allow a broader community to invest in a difficult to access asset class due to the technical nature of Bitcoin. Gemini will be available on the BATS exchange whereas SolidX will be on the New York Stock Exchange under the ticker XBTC. SolidX’s offering differs from Gemini as it is insured by up to $10 million, protecting against loss or theft of the underlying Bitcoin.
Fintech and blockchains are the basis of the next Kondratiev wave
Blockchain technology is driving the fintech revolution, which represents a turning point in the long-term waves of economic fluctuation and technological development. These waves were first described by economist Nikolai Kondratiev. Most academics agree that there have been eighteen Kondratiev waves, each lasting roughly 60 years, since modern economic development began in 930 AD, credited to the Sung province in China.
The most recent wave was the information and telecommunications revolution which produced the internet, which followed the scientific-technical revolution that saw the rise of automobiles and petrochemicals. Professor Thompson, an expert in political science, suggests we are currently in the depression phase of the cycle which should end by 2020, after which the period of creative destruction will give rise to fresh avenues of political, social and economic development. The next sixty years will see blockchain technology drive innovation and value, and the companies involved in this could be attractive long-term investments.
Very few companies are listed on stock exchanges that are involved with this new technology; choosing the right one now could be like buying Amazon stocks in the early 2000’s. The efficiency gains and new possibilities characteristic of blockchains will drive long-term gains in the value for companies involved in the Blockchain space versus old, declining companies that delivered value during the information and telecommunications wave.
By taking advantage of the growth in value of bitcoin but removing some of the risky elements, ETF’s will help to bring bitcoin to a wider audience. Moreover, the rise of publicly-listed “Blockchain stocks” will provide another opportunity to invest in the crypto space without holding the assets directly and will no doubt be a sector that outperforms over the long term. Blockchain will be the key force driving the next wave of economic growth and technological innovation over the coming decades.
Disclaimer: The author is not invested in any of these companies, nor does their inclusion in this article imply an endorsement by him or by BTCMANAGER. Companies listed are used strictly for illustration purposes to give example of listed companies that could be good long-term investments. Always perform due diligence before making any investments.