Beyond buying bitcoin, how can you invest in the rise of blockchain technology?
I was recently invited to lecture at Steve Gordon’s terrific blockchain class at Babson College. The class is so popular that this year he started a second class at 8:00 am to meet the demand. (Usually you can’t get college students out of bed at 8 am, unless the bed is on fire.)
Since my talk was on crypto investing, Steve had put together a presentation on “How to Invest in the Blockchain Ecosystem,” which was a great overview of all the investing opportunities beyond crypto. We’ll call this the list of blockchain investing ideas.
Think of this as your master class for blockchain investors.
Invest in bitcoin and cryptocurrencies. This is the obvious investing opportunity, where we spend most of our time here at Bitcoin Market Journal. We treat blockchains like businesses, and cryptos like companies. We analyze their tokens like stocks, using a framework we call crypto value investing.
We see crypto projects like tech startups. Like all technology revolutions, most crypto “companies” won’t make it, but a few will go on to disrupt the world of finance, banking, and other sectors — and become the new global superpowers. Our goal is to invest in these early winners, and hold for the long term.
Become a miner (or staker). Since blockchain is decentralized (run by the people), you can help run a blockchain network by either mining (in Proof of Work blockchains) or staking (in Proof of Stake).
Mining usually requires expensive mining rigs and lots of electricity, which is not great for the environment. However, there are other forms of mining, such as running a Helium hotspot, that are lower cost and lower carbon, and serve a useful purpose.
Staking simply involves owning crypto and “locking it up” to secure the network (i.e., staking ETH to secure the Ethereum network). It is environmentally-friendly, and you earn staking rewards (i.e., a portion of the network fees) for your help.
Invest in stablecoins. You can buy and hold stablecoins – cryptocurrencies that hold their value against another currency, usually the US dollar – and invest them to earn interest (often called “yield”).
When interest rates are low, these are amazing opportunities, as the demand for stablecoins is high: traders use them to make money in crypto markets, which are still young and inefficient. In 2021, for example, you could earn a reliable 4-5% on high-quality stablecoins with little risk.
As interest rates rise, however, stablecoins become a less attractive investment. When investors can earn 4% in U.S. Treasury bills, that drains money from the crypto ecosystem, so opportunities are fewer.
Invest in a crypto ETF. An exchange traded fund holds crypto assets, but can be bought and sold through a regular broker or online trading platform. Alas, in the U.S., you can currently only buy ETFs made up of “bitcoin futures,” or the future price of bitcoin — not the price of bitcoin today.
For this reason, it’s still easier to just buy and hold bitcoin directly, through a crypto exchange like Coinbase or Binance. But if your circumstances only permit investing through traditional brokerages, or you’re outside the U.S., consider a crypto ETF.
Invest in “blockstocks.” This is our name for publicly-traded companies whose primary business is blockchain. Currently, their stock prices generally rise and fall with the crypto market, so it’s not a great way to diversify.
However, our thesis is the long-term winners will be positioned to dominate the industry, since they are bridges between the traditional and crypto worlds: fully regulated, with the financial discipline of public companies. Coinbase (COIN), for example, is the gold standard of regulated U.S. crypto exchanges.
Invest in early-stage blockchain projects. Often called angel investing or seed-round investing, you can invest in startup blockchain projects, or join a group of angel investors that pools their money to invest in these startups.
It’s risky, of course, because most startup projects don’t make it. But the potential reward is high, because a few blockchain startups will go very big indeed. Joining a quality group can help you make better decisions by listening to the smart questions of others.
Angel investing is best for those with large amounts of capital to invest, a passion for the industry, and the willingness to really work alongside early-stage founders where needed.
I’m a member of Chain Reaction, a terrific angel investor group that I recommend highly for both investors and startups looking for funding.
Invest in companies building on blockchain. Separate from blockstocks, these are traditional companies investing in new blockchain or crypto projects, to grow or evolve their core businesses.
Practically every major bank and financial institution has some kind of blockchain or crypto team, but most of them are hiding away, waiting for some kind of regulatory clarity. (I truly wonder what these teams do all day.)
One way of seeing who’s serious is looking at companies filing blockchain patents. When we last ran our Blockchain Patent Report, the leading companies were Bank of America, IBM, Mastercard, and Fidelity.
Holding blockchain patents is not in itself a reason to invest, but if you like the company as an investment opportunity, and they’re serious about building blockchain businesses, it’s icing on the cake.
What’s Not on the List
You’ll notice what’s not on this list: trading, speculating, technical analysis, meme tokens, social investing, or astrology. These things, we have found, can make some people money some of the time, but are rarely suitable for building long-term wealth.
As crypto value investors, that’s what we’re after: putting our money into quality projects that help pave the way for the future of money. In that way, not only do we achieve financial freedom, but so does the world.
With grateful appreciation to Steve Gordon of Babson College, whose blockchain class inspired today’s column.
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