The Next Right Play is Blockchain, not Bitcoin
Bitcoin mining has been declared public enemy number one by environmental lobbyists. It’s been abandoned by Elon Musk for excessive fossil fuel consumption. Senator Elizabeth Warren has openly called for government intervention. The ride is over, folks.
Cryptocurrencies aren’t going to disappear, but they do have a rough road ahead. Experienced investors knew this would happen sooner or later. Bitcoin was a nice play for something valued on pure speculation. It’s time to come back to the real world now.
Blockchain is real. The game-changing technology that powers Bitcoin is taking root in banking, finance, healthcare, and supply chain management, just to name a few. There are investment opportunities in each of those sectors that will be boosted by their adoption of blockchain.
The Visa Partnership with Chain to form B2B Connect
Visa (V) was one of the first to embrace blockchain technology and helped legitimize Bitcoin early on when they partnered with Chain to create B2B Connect, a blockchain-powered business-to-business payment processor. It’s been around since 2016.
In addition to Visa, Chain partners with Citi Ventures, the owners of Square (SQ) and Betterment, and Khosla Ventures (KVSA), which owns Stripe and Palantir (PLTR) Technologies. Chain is listed on EquityZen as a potential IPO for 2021.
Let’s unwind this a bit. Visa is one of my staple stocks. It’s only up 6.38% this year (YTD), but it earned me over 200% in the past five years. Square and Palantir were big hitters for me last year that I wrote about here. I think I’ll invest in Chain when it becomes available.
IBM’s Investment in Blockchain has Brought them Back to Life
The establishment of IBM Blockchain in 2017 barely caused a blip on the radar. The stock had been flat, and the longtime blue chip was widely considered a dog by serious investors. Between 2017 and 2020, falling share prices shaved 367 points off the Dow.
If you look at a five-year time frame, IBM (IBM) shows a 4.14% loss, in line with investor expectations, but in 2021 they’re up 17.54% YTD and still have plenty of room to grow. In my opinion, they’re one of the better value stocks on the market right now.
IBM Blockchain has over five hundred projects in the works. That includes blockchain infrastructure for Food Trust, Walmart (WMT), and World Wire, a digital payments network for international wire transfers. These projects are fueling the IBM resurgence.
Blockchain ETFs to Gain Exposure to the Technology
If you’re looking for additional exposure to blockchain, or don’t want to spend time picking individual stocks, there are some ETFs you can buy. These are funds that focus on companies that invest in the research, development, and support of blockchain infrastructure.
One of these is the Siren Nasdaq NexGen Economy ETF (BLCN). This ETF has seventy holdings, including Baidu (BIDU) and JP Morgan Chase (JPM). The fund is currently up 17.22% YTD and 71.48% over the past twelve months. Those are the kind of numbers I like.
My second ETF recommendation is the Amplify Transformational Data Sharing ETF (BLOK). It’s more narrowly focused than BLCN, with 80% of its net assets invested in companies that actively develop or use Blockchain technology. YTD returns for 2021 are at 32.37%.
Just for comparisons sake, the S&P is showing a 14.10% gain this year and Nasdaq is up 11.38%, so both ETFs are outpacing the market. That seems to be the case with most of the companies I’ve researched in this space. Blockchain is on the rise. The numbers prove it.
Terminology: DLTs and NFTs
As investors, we’ve become accustomed to identifying investments by their ticker symbol, so acronyms are not a new concept for us. That said, with new technology comes new terminology. When it comes to blockchain, there are some terms you need to know.
DLT stands for distributed ledger technologies. Blockchain falls in this category. With it, the need for middlemen to process payments is eliminated, driving transaction costs down. Look for instances of DLT popping up more frequently in multiple industries.
NFTs are a head shaker for me. The letters stand for “Non-Fungible Token.” It’s a token that is stored on a DLT to certify it as a unique digital asset. This technology is currently being used for items like photos, videos, and audio recordings.
On March 11, 2021, an obscure artist named Mike Winkelmann, aka Beeple, sold a piece of digital art (a JPEG) as an NFT for $69 million. Blockchain made that possible. Expect to see more of this, particularly in financial services where portability and liquidity are key issues.
Personally, I’d rather own a print in a frame, but that’s just me. NFTs are still considered a fringe technology that needs additional development. DLTs on the other hand, especially blockchain, have earned investor confidence. I’m buying. You should too.
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