How to Invest in Blockchain Stocks

Cryptocurrency may be the most renowned application for blockchain technology, but blockchain’s capabilities extend far beyond digital currencies. Many organizations use blockchain technology to improve their operations, especially for complex and decentralized systems. Here’s how you can invest in blockchain and some factors you should consider before doing so.

Image source: Getty Images.

Quick review: what is blockchain?

Before you start investing in blockchain, deepen your understanding of how it works. Blockchain is a digital public ledger that records transaction information. Each “block” of information is digitally verified and assigned a unique hash (or identity) and added to the public ledger. In case of cryptocurrencies making use of the blockchain, adding this new block creates a new unit (or coin) of currency.

Once again, blockchain’s capabilities extend far beyond the world of digital currencies. For example, Walmart (WMT 1.23%) has been testing the use of blockchain to track the distribution of food from its myriad suppliers, potentially making it easier to isolate foodborne illness outbreaks. Starbucks (SBUX -0.25%) has also piloted a blockchain project for its coffee farmers in Costa Rica, Colombia and Rwanda to improve price transparency.

Why start investing in blockchain?

As a new technology with potential revolutionary effects in the business world, blockchain is naturally attracting interest from the investment community. Here are some factors that make it attractive:

• Blockchain could help an organization become more efficient, unlocking greater profitability over time.
• Blockchain is receiving high-profile attention from big tech companies, such as Amazon (AMZN -1.79%) e Salesforce.com (CRM -1.88%).
• Due to COVID-19, the world is rapidly going digital. Blockchain goes hand in hand with other adjacent technologies, such as cloud computing, e-commerceAND TO THE.

There are also risks to consider, particularly for blockchain investments involving cryptocurrency:

• Lots of new features cryptocurrencies they are out there with underlying blockchain projects and many of them are not successful.
• Cryptocurrency prices can be highly volatile and purchasing them can result in the loss of your capital.

Ways to start investing in blockchain

Aside from investing directly in stocks of companies that use blockchain, there are other ways to get in on the action.

1. Buy cryptocurrencies directly, like Bitcoin (Bitcoin -6.14%) or Ethereum (ET -5.15%) or buy shares of a cryptocurrency trust such as Grayscale Bitcoin Confidence (OTC: GBTC).
2. Buy a exchange-traded fund (ETF) which specifically invests in stocks of companies with exposure to blockchain. There are two notable examples Amplify the ETF on transformational data sharing (BLOCK -2.38%) e Reality Shares Nasdaq NextGen Economy ETF (BLCN 0.65%).
3. Participate in crowdfunding a new cryptocurrency via a initial coin offering (ICO) — purchase of a new cryptocurrency issued by a developer working on a new blockchain project.
4. Investing in public companies involved in blockchain. Then there is the possibility of buying shares of companies that develop or use blockchain technology, such as Walmart or Starbucks. Incorporating a digital accounting system can make a business leaner and more profitable, and higher profits equate to higher stock prices in the long term.

   But there are some companies making more targeted bets on blockchain. The digital payments giant PayPal holdings (PYPL -1.54%) allows merchants to accept bitcoin payments through its Braintree branch. Its digital wallet apps PayPal and Venmo are also working on other ways to incorporate blockchain and cryptocurrency buying and selling features.

   Likewise, Square‘S (m2 2.08%) Cash application the digital wallet allows the buying and selling of bitcoins. Old digital payments companies Visa (V 1.16%) e MasterCard (BUT 0.79%) are also partnering with cryptocurrency and blockchain startups to keep their payment networks relevant as times change.

   Merci and leader in the financial derivatives market ECM Group (ECM Also noteworthy is 0.72%) as it created the first futures and options exchange for Bitcoin.

   Even on the digital asset front, Facebook (NASDAQ:FB) continues to work (via the Libra project) to enable digital payments and financial services on its apps. The social media giant’s aspirations have faced numerous setbacks from government regulators, but Facebook’s more than 2 billion users could make it a formidable force in the blockchain field if it can figure out how to make it work. Salesforce has also integrated software into its platform to help its customers use blockchain in daily operations or accept cryptocurrency payments.

Blockchain related topics

Like all technology, it all starts with semiconductors. Graphics Processing Unit (GPU) chips designed by NVIDIA (NVDA -6.06%) e AMD (AMD -0.93%) are a key ingredient in digital currencies. Even the old stalwart Intel (INTC -1.25%) has a division to collaborate with companies developing blockchain to foster innovation and development. IBM (IBM 1.69%) is another older tech company looking to evolve in a rapidly changing world, and its blockchain segment has already partnered with numerous companies to help them put new technology into real-world practice.

The three largest public cloud providers: Amazon‘S (AMZN -1.79%) Amazon Web Services, Microsoft‘S (MSFT -0.4%) Light blue and Alphabet‘S (GOOGLE -0.32%)(GOOG 0.21%) Google Cloud: All have blockchain services available on their platforms. Amazon in particular could incorporate these capabilities into its massive e-commerce empire as well. While far from a targeted bet, these cloud providers could be big beneficiaries in the future as digital accounting technology continues to develop and adoption increases.

Like other technologies, blockchain could offer progressive companies the opportunity to grow and unlock new value. Early use cases involve financial transactions and logistics efficiency improvements, but decentralized digital ledgers could find their way into many other areas of a company’s operations.

Buying shares of companies that take the time to fully understand and implement blockchain could be a great long-term investment strategy if you want to bet on the further development of blockchain.

Questions and answers on Blockchain technology

The Motley Fool sought insights on blockchain from two finance experts, Dr. Christine Parlour, Professor and Sylvan C. Coleman Chair of Finance and Accounting at the Haas School of Business, University of California, Berkeley, and Dr. Jimmie Lenz , Director of Duke University’s Master of Engineering in FinTech and Master of Engineering in Cybersecurity.

Expert advice

Dr. Christine Parlor

SYLVAN C. COLEMAN PROFESSOR AND CHAIR OF FINANCE AND ACCOUNTING AT THE HAAS SCHOOL OF BUSINESS, UNIVERSITY OF CALIFORNIA, BERKELEY.

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The Motley Fool: What innovations or trends in blockchain technology are you most excited about?

Lounge area: There are some interesting experiments going on. Changes are underway to the consensus protocols used by various chains that will make them more environmentally friendly and increase capacity. I also think that steps towards interoperability will grow the area by leaps and bounds. Personally, I find the ongoing experiments in various types of markets fascinating. I like to understand trading venues. Automated market makers effectively introduce a new way of providing liquidity that preliminary analysis suggests is very efficient.

The Motley Fool: In your opinion, what are the main advantages and disadvantages of investing in companies that use blockchain technology?

Lounge area: Standard portfolio advice is to have a well-diversified portfolio. In other words, don’t put all your eggs in one basket. Cryptocurrency returns are not correlated to gold, market index, etc. For this reason they represent a new asset class and therefore should be part of any portfolio. It is important to note that most cryptocurrency returns are correlated to Bitcoin and unfortunately Bitcoin returns are very volatile, with a notable likelihood of sharp declines. Space is not for the faint of heart. So if you don’t like risk, put a small portion of your portfolio in cryptocurrencies and try not to look at it every day.

Dr. Jimmie Lenz

Director, Master of FinTech Engineering, Duke University

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The Motley Fool: What advice would you give to someone interested in investing in blockchain technology?

Fishing line: Learn and keep learning. Developments in space are happening at a rapid pace, so much so that new knowledge is constantly being generated. As a professor who teaches blockchain, this is the hardest part, reinventing the course every semester, but it keeps me and my students as current as possible. This does not mean neglecting basic knowledge; having this is key, as is some sense of history to understand why developments occurred at specific times.

Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Nicola Rossolillo has positions in Advanced Micro Devices, Alphabet, Amazon, Bitcoin, Block, Ethereum, Mastercard, Nvidia, PayPal, Salesforce and Visa. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Bitcoin, Block, Ethereum, Mastercard, Microsoft, Nvidia, PayPal, Salesforce, Starbucks, Visa, and Walmart. The Motley Fool recommends CME Group, Intel and International Business Machines and recommends the following options: Long January 2023 $57.50 Calls on Intel, Long January 2025 $370 Calls on Mastercard, Long January 2025 $45 Calls on Intel, soon December 2023 $67.50 calls on PayPal and soon January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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