Blockchain Bets: Exploring Investment Opportunities Beyond Cryptocurrencies

Blockchain technology is attracting interest from the investment community due to its potential to revolutionise the business world. However, many investors are sceptical about the blockchain market and worry about their lack of understanding of the technology. As a result, financial instruments have been developed that allow investment in blockchain without purchasing cryptocurrency. One of the most widespread solutions is the exchange-traded fund (ETF). These funds allow investors to buy shares in companies pursuing business in the blockchain sector, such as IBM, Oracle, and Visa.

Invest in companies that hold cryptocurrencies

Investing in blockchain technology without buying coins can be done by investing in companies that hold cryptocurrencies. Here are some key points to consider:

Established Companies with Crypto Exposure

Invest in well-established companies that have exposure to cryptocurrencies and blockchain technology. These companies may not be directly involved in the crypto space but benefit from its popularity. For example, companies like Microsoft Corporation, Mastercard Incorporated, and PayPal Holdings, Inc. are all invested in blockchain and crypto.

Crypto Service Providers

Consider investing in companies that are crypto service providers, such as cryptocurrency exchanges. These companies derive revenue from blockchain technology and can provide exposure to the crypto market without directly purchasing coins. Coinbase (COIN), for instance, is a publicly traded company and one of the largest crypto exchanges. It offers a platform for buying and selling various cryptocurrencies and often earns transaction fees from these trades.

Blockchain Technology Developers

Another option is to invest in companies that are actively researching, developing, and implementing blockchain technology. These companies are often involved in crypto mining, software development, and other blockchain-based services. Examples include Riot Blockchain (RIOT), Canaan Inc. (CAN), and Bitfarms (BITF).

Crypto and Blockchain ETFs

Exchange-Traded Funds (ETFs) provide a way to gain exposure to cryptocurrencies and blockchain technology without directly purchasing coins. These ETFs invest in companies with links to cryptocurrencies or hold crypto on their balance sheets. Examples include the Global X Blockchain & Bitcoin Strategy ETF (BITS) and the iShares Bitcoin Trust (IBIT).

Diversification and Risk

It is important to remember that investing in cryptocurrencies and blockchain comes with risks due to their volatile nature. Diversifying your portfolio and consulting financial professionals can help mitigate these risks. Additionally, always conduct thorough research and due diligence before investing.

Look at companies with blockchain-related technology

Blockchain technology is being embraced by some of the most prominent titans of the tech industry, and it is no longer the startup industry's best-kept secret. Here are some companies with blockchain-related technology that you can look at:

Nvidia (NVDA)

Nvidia is the leading manufacturer of graphics processing units (GPUs), which are essential components in technological areas such as artificial intelligence, autonomous vehicles, and gaming. GPUs are also key hardware components of cryptocurrency mining. Nvidia's CMP technology allows for a larger number of GPUs to be controlled by a single CPU, making cryptocurrency mining faster and more efficient.

Block (SQ)

Formerly known as Square, Block has two main components to its business: its payment-processing ecosystem for small businesses and its Cash App personal financial platform. The company also offers business lending, a stock trading platform, and buy-now-pay-later financing. Block has its own team of Bitcoin developers, known as Spiral, and an open-developer platform for blockchain applications called TBD. The company's name change from Square to Block reflects its shift in focus toward blockchain technology solutions.

Coinbase (COIN)

Coinbase is the world's largest cryptocurrency exchange, with more than 100 different digital assets available to trade on its platform. The company has roughly 98 million verified users in over 100 countries worldwide, and there is more than $1.2 trillion in annualized cryptocurrency trading volume flowing through the platform. Coinbase also offers a crypto wallet, a designated Coinbase debit card, and a crypto rewards system.

IBM

IBM offers services to help businesses integrate blockchain into their processes and also hosts its own blockchain platform and open-source framework known as Hyperledger Fabric. IBM's blockchain solutions have helped overcome hurdles in supply chain, credential security, and digital asset management, and it has over 120,000 organizations contributing to the Hyperledger Fabric project.

Advanced Micro Devices (AMD)

AMD creates computer hardware and core technologies for data centers, high-performance computing, and gaming. The company's Blockchain Compute systems combine GPU and CPU hardware to power secured and optimized blockchain transactions. AMD has also partnered with other blockchain companies to create blockchain gaming and rendering platforms.

Microsoft's Azure platform

Partnering with ConsenSys, Microsoft's Azure platform offers the Quorum Blockchain Service, which helps establish blockchain in companies across various sectors. The fully-managed ledger service allows for the creation and scaling of enterprise blockchain applications and smart contracts in the cloud, used by companies like Bosch and Prescryptive Health.

Intel

Developed in collaboration with the Linux Foundation, IBM, and SAP, Intel's Hyperledger Sawtooth network is an enterprise-level blockchain platform for creating blockchain applications and smart contracts. Its platform offers data protection from outside parties, open-sourced information gathering, and a virtually unhackable ledger.

Riot Blockchain (RIOT)

Riot Blockchain is a crypto mining company that utilizes over 116,000 Antminer application-specific integrated circuits (ASICs) and hosts around 200 MW-worth of Bitcoin mining clients. By 2023, the company forecasts speeding up its total self-mining hash rate capacity to about 12.6 exahashes per second.

Marathon Digital Holdings (MARA)

Marathon Digital Holdings operates in a data center with over 2,000 ASIC Bitcoin miners, dealing entirely with crypto mining and the generation of digital assets. The company's ultimate goal is to support the development and security of the Bitcoin ecosystem and make the currency more accessible to investors.

Nu Holdings Ltd (NU)

Nu Holdings specializes in providing digital banking services. One of its holdings, Nubank, has partnered with Fireblocks, a U.S.-based enterprise platform that manages digital asset operations and develops blockchain products. Nu Holdings has expanded its clientele and revenue per customer and is the fourth-largest bank in Brazil in terms of members. It is also growing in Mexico and Colombia.

MicroStrategy Inc. (MSTR)

MicroStrategy is a prominent enterprise analytics and mobility software company. The firm is expected to launch MicroStrategy Orange, a decentralized identity product. As of the end of the first quarter of 2024, MicroStrategy held 214,400 BTC.

Other Notable Companies

Other notable companies using blockchain technology include Mastercard, Amazon, PayPal, and more.

Explore blockchain-as-a-service (BaaS)

Blockchain-as-a-service (BaaS) is a relatively new development in the growing field of blockchain technology. It is the third-party creation and management of cloud-based networks for companies that build blockchain applications. BaaS functions like a web host, running the back-end operation for a blockchain-based app or platform.

BaaS is based on the software-as-a-service (SaaS) model, allowing customers to leverage cloud-based solutions to build, host, and operate their own blockchain apps and related functions on the blockchain. At the same time, the cloud-based service provider keeps the infrastructure agile and operational.

Major players in the BaaS space include:

• Microsoft: Partnered with ConsenSys to introduce Ethereum blockchain-as-a-service on Microsoft Azure in 2015.
• Amazon: Introduced Amazon Managed Blockchain, a service that allows users to create and manage scalable blockchain networks using open-source frameworks, including Ethereum and Hyperledger Fabric.
• R3: A consortium of global financial institutions that produced a distributed financial ledger called Corda.
• PayStand: Specialises in sending and receiving payments between companies.
• Hyperledger Foundation: A non-profit that created Hyperledger, an open-source distributed ledger that can be customised for enterprise uses.
• IBM: Used Hyperledger Fabric to build the IBM Blockchain Platform, its blockchain as a service.

BaaS providers offer external services that allow users to set up all the necessary blockchain technology and infrastructure for a fee. Once created, the provider continues to handle the complex back-end operations for the client, including support activities such as bandwidth management, resource allocation, hosting requirements, and data security features.

BaaS may be the catalyst that leads to the widespread adoption of blockchain technology, as it allows businesses to outsource the technically complex work of creating and running their own blockchains and focus on their core activities.

Consider blockchain consortiums

Another way to gain exposure to blockchain technology development is to look at organisations that have grouped together in a blockchain consortium or open-source project. These include:

• Hyperledger: Founded in 2016 by the Linux Foundations, Hyperledger is an open-source collaborative effort to advance cross-industry blockchain technologies. It has over 30 founding corporate members, including Intel, IBM, Baidu, American Express, Airbus, and JP Morgan. Hyperledger is a permissioned network with public or confidential transactions that offers smart contract capabilities.
• Enterprise Ethereum Alliance (EEA): The EEA connects corporates, startups, academics, and technology vendors with Ethereum subject matter experts. Members include BP, BNY Mellon, Microsoft, National Bank of Canada, and Shell.

These blockchain consortiums offer opportunities for investors to get involved in the equity market and gain exposure to blockchain technology development without directly investing in cryptocurrencies.

It is worth noting that investing in these companies will also expose you to other business areas and factors beyond just blockchain. As such, it is important to conduct thorough due diligence and consult with a financial professional before making any investment decisions.

Invest in cryptocurrency funds

Cryptocurrency funds are a new investment vehicle similar to mutual funds or ETFs, containing a portfolio of digital tokens and cryptos instead of stocks, indices, or commodities. Crypto funds have been available to investors since the first bitcoin fund was launched in 2013, and as of 2024, over 840 cryptocurrency funds have been established.

• Grayscale: The world's largest digital currency asset manager, with over $20 billion in assets under management (AUM) as of 2023.
• Pantera Bitcoin Fund: The first US-based institutional asset manager to focus exclusively on blockchain, with a long track record and deep experience in the space.
• A16z Crypto: Andreessen Horowitz's dedicated crypto fund, which has the second-largest amount of assets under management.
• CoinShares: Europe's first and largest bitcoin investment fund, providing diversified exposure to digital assets through a wide array of crypto ETFs, ETPs, and other multi-asset portfolios.
• Galaxy Digital Capital Management: A New York-based investment firm focused on digital assets and blockchain technology, with a broad and diverse investment portfolio across the crypto ecosystem.
• Polychain Capital: A fund that invests directly in cryptocurrencies rather than crypto companies, with a focus on providing investors with "exceptional" returns through active management strategies.
• Multicoin Capital: Another fund that provides actual cryptocurrency exposure, performing well in bull markets.

These funds offer a way to gain exposure to the crypto market without directly purchasing cryptocurrencies. They are well-suited for investors who want to avoid the volatility and risk associated with direct crypto investing.

Frequently asked questions