Opinions and analyses

29 January 2018

Individual investors can invest in blockchain

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While reports have been pouring in of Thanksgiving dinner conversations this year leading to retirees investing in cryptocurrencies, like much else at the feast, this is probably not healthy except in moderation. But the average retail tech investor could still make a play at blockchain based returns.  However, accessing the blockchain investment opportunity is non-trivial.  There are really three options at their disposal:

  1. Open an exchange account (on Coinbase, Binance, etc.) and trade in listed Cryptocurrencies
  2. Invest in equity of existing technology companies that will benefit from the adoption of blockchain
  3. Invest in a blockchain fund - usually a crypto hedgefund or crypto VC fund.

In this post, I will only address the first two, as the third is addressed elsewhere on our website.

Cryptocurrencies, App-Tokens and ICOs

While you could invest in BTC at $17000 or ETH at $500 this week it may leave you wondering about headroom for growth after recent run ups. There are other options: one of the 300+ other app tokens now listed on exchanges or looking to list via so called Initial Coin Offerings (ICOs) (also called crowd sales or token sales) will allow you to experience the uncertainty, volatility, and potentially significant upside, for a lot less. But making sense of the white papers (similar to an IPO “prospectus” but not regulated to enforce any kind of information disclosure standards) associated with each of these app tokens is non-trivial. Meanwhile, both the CBOE and Tokyo’s futures markets are going to allow trading in BTC futures so for more adventurous investors that is another avenue to play the markets.

Traditional Equities

Those who would like to “draft” in the wake of the blockchain boom, without actually buying directly into it, may want to look at the Infrastructure layer. Many of the traditional technology infrastructure companies (MicrosoftIBM , etc.) are gearing up to ride the wave. Most blockchain technology companies also use Amazon’s AWS or Google’s GCP infrastructure to deploy blockchain. All of these platforms will see growth that will trickle down to your technology ETFs or mutual funds.

However, for a more concentrated play, take a look at the GPU makers like Nvidia and AMD. The former was the best performing stock on the Nasdaq in 2016 and is up 78% YTD in 2017 as of today. As an exercise I tried to map NVidia’s daily closing stock price over the past five years versus Bitcoin’s hashrate (which is a measure of the computational complexity of mining new coins).

 

One advantage some of the GPU vendors have is that there is a trifecta of transformational technology (blockchain, AI/machine learning, and graphically intensive computing like gaming and VR/AR) that all leverage GPUs. So there is a theoretical built-in hedge against the risks of blockchain.

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