These companies offer exposure to blockchain.
Blockchain technology is probably most widely associated with cryptocurrencies like bitcoin, but the distributed ledger technology has the potential to transform other areas as well. It can make banking transactions faster, health care and property record keeping simpler and enable the use of smart contracts. There are many companies out there trying to tap into the growing adoption of blockchain technology. Investors should know that many of the publicly traded companies offering pure-play exposure to the blockchain universe are small, have liquidity issues and don’t come with a long track record on the market. Others are well-established firms that offer the stability of a larger company but whose revenue streams aren’t as greatly impacted by blockchain offerings as the smaller companies. If you’re interested in this emerging tech, here’s a look at seven of the best blockchain stocks to buy this year.
Intel Corp. (ticker: INTC)
This traditional technology company might not be the first name that comes to mind for exposure to blockchain technology, but Intel’s new Software Guard Extensions (SGX) technology, which the company says “offers hardware-based memory encryption that isolates specific application code and data in memory,” can benefit blockchain transactions as well as autonomous driving and artificial intelligence applications, says Eric Ervin, CEO of Reality Shares. His company offers the blockchain exchange-traded funds Reality Shares Nasdaq NexGen Economy ETF (BLCN) and Reality Shares Nasdaq NexGen Economy China ETF (BCNA). While Intel is a large company that derives its revenue from other sources besides blockchain technology, SGX tech could help sales if it is widely adopted.
International Business Machines Corp. (IBM)
Another large traditional tech player making steps into the blockchain world is IBM. The company’s open source blockchain framework, Hyperledger Fabric, is the leading framework enabling enterprise blockchain platforms, Ervin says. While Hyperledger is open source — meaning anyone can use it for free — companies tend to come to IBM to have the company create implementation for them, a service for which IBM charges, Ervin says. While that helps IBM’s revenue, Ervin suspects that Hyperledger activities make up a pretty small percentage of IBM’s sales. That will probably remain the case over the next few years, he adds. But as investors see blockchain adoption starting to accelerate, they may make increasing bets on IBM’s Hyperledger revenue, helping boost the stock price.
When it comes to the best blockchain stocks with a much bigger percentage of revenue from the technology, Ervin likes Canaan. The company manufactures hardware used in cryptocurrency mining, which is the process by which a network of computers is used to verify transaction information on cryptocurrency networks. Ervin likes Canaan’s prospects. Because of the nature of the mining industry, equipment becomes obsolete quickly as miners look for more powerful and energy-efficient tools. That gives mining equipment makers the chance to sell newer, more expensive items. Still, unsold equipment can be a risk for hardware makers and can lead to pressure to discount older models. The volatile price of bitcoin is also a risk, as miners may not want to put money into new equipment when prices are low.
Galaxy Digital Holdings (GLXY.V)
Michael Venuto, chief investment officer with Toroso Investments, which manages the investment strategy and portfolio selection for the Amplify Transformational Data Sharing ETF (BLOK), says Galaxy Digital is one of Toroso’s favorite ways to get exposure to the blockchain universe. A digital asset, cryptocurrency and blockchain technology sector company, Galaxy Digital is involved in asset management, venture capital investments, trading and investment banking. “We find it to be one of the best pure plays,” Venuto says, who thinks the company is undervalued. Because it trades in Canada, the company has less institutional money pushing its stock price up. Also, the assets it owns through its venture capital arm are hard to value, leaving investors to focus on other parts of its business. Those venture capital investments could be worth more in coming years, he adds.
Silvergate Capital Corp. (SI)
This California-based banking company has become the premier banker focusing on blockchain and cryptocurrency companies, Venuto says, and it deserves a spot as one of the best blockchain stocks to buy. While Silvergate is a relative newcomer to trading publicly, only debuting its initial public offering last year, the company’s Silvergate Bank subsidiary has been profitable for more than 20 years and began pursuing digital currency customers in 2013. In its latest quarterly report, the company said digital currency customers grew to 850 as of March 31, compared with 617 the year prior. “You’re getting exposure to the growth of the industry,” Venuto says. This year, the company launched a new product that allows customers to obtain U.S. dollar loans collateralized by bitcoin and held at digital currency exchanges that are also Silvergate Bank customers.
While many investors may have heard of Square, or at least seen the company’s card-swiping devices at coffee shops or on cellphones, they may not be as aware of the company’s involvement in cryptocurrency. Square’s Cash App includes a feature permitting customers to buy and sell bitcoin. With that comes a whole infrastructure and culture associated with the cryptocurrency, says Dan Weiskopf, a portfolio manager with Toroso Investments. He says the leap into that culture is a mark of solid management decisions to target the blockchain space. In its latest quarterly financial results filing, Square said bitcoin revenue increased by $240.6 million, or 367%, over the prior year. “The increase was due to growth in the number of active bitcoin customers, as well as growth in customer demand,” the company said.
Intercontinental Exchange (ICE)
In 2018, New York Stock Exchange owner Intercontinental Exchange announced the launch of Bakkt, which uses Microsoft (MSFT) cloud solutions to create an open and regulated global ecosystem for digital assets. ICE’s project, which brings institutional infrastructure to digital assets, is an extremely important contribution to the wider adoption of blockchain, Venuto says. Bakkt offers a regulated bitcoin custody solution as well as bitcoin futures and options, and ICE has announced a new consumer app and an acquisition of a perk program platform. “This combination will position Bakkt and its consumer app as an aggregator and a marketplace for a broader set of digital assets such as airline miles and loyalty points, and will expand Bakkt’s presence across this $1 trillion dollar asset class,” ICE said in its latest annual report.
Seven blockchain stocks to buy:
— Intel Corp. (INTC)
— International Business Machines Corp. (IBM)
— Canaan (CAN)
— Galaxy Digital Holdings (GLXY.V)
— Silvergate Capital Corp. (SI)
— Square (SQ)
— Intercontinental Exchange (ICE)
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