How to Invest in Blockchain Stocks

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Contributor, Benzinga
Updated: August 31, 2022

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In today’s economy, digital currency and blockchain technology are leading the way into the future. If you’ve thought about investing in cryptocurrencies but have been reluctant due to their highly volatile markets, then blockchain stocks might offer you a viable alternative. 

Investments in blockchain stocks could appreciate considerably over the coming years as the technology gains more widespread acceptance, although they might be extremely speculative in some cases. The crypto crash of 2022 is one of those events that tarnished the crypto sector and could have affected blockchain stocks. Even so, investors want exposure to this sector so that they can diversify their investments, assuming that the crypto space will continue grow over time and, with patience, their investments will pay off.

The following guide covers some blockchain basics and provides some pointers on how to invest in blockchain stocks.

Ways to Invest in Blockchain

Before you begin buying blockchain stocks, you should have an understanding of blockchain technology and its principal uses. The technology was originally devised in 2008 in a paper by someone or a group of people using the name Satoshi Nakamoto. It was presented as a way for 2 people or companies to transfer payments directly without having to use a 3rd party. 

What is a Blockchain?

Blockchains are digitized, decentralized public ledgers that list all transactions made in their associated cryptocurrencies. Furthermore, computing the next “block” in the blockchain from new transactions is the mechanism through which digital currencies are “mined” or brought into existence as a reward that miners receive for successfully doing the complex computation required. 

Blockchains are constantly growing as newly completed blocks get added to the public ledger in chronological order that allows cryptocurrency transactions to be monitored and updated without a central record. The record created by a transaction is unalterable and able to be verified by anyone using the blockchain and not just by major financial institutions like banks.

Several industries have successfully applied blockchain technology to solve business problems. These include banks, companies involved in the Internet of Things (IoT), artificial intelligence (AI) application developers, cybersecurity firms and online music companies. 

How to Invest

You have several options when investing in blockchain-related companies that include the following: 

  • Stocks: The easiest way to invest in blockchain technology companies is via the stock market. A number of companies involved in the industry have had their initial public offering (IPO) and are available to buy on stock exchanges or on the over-the-counter market.  Remember, when you invest in the blockchain, you can gain exposure to the sector through stocks without directly purchasing cryptocurrencies or NFTs.
  • Exchange-traded funds (ETFs): ETFs give you access to funds that actively invest in blockchain companies.
  • Crowdfunding: Some blockchain companies raise money through crowdfunding networks. Blockchain crowdfunding also lets startup companies create their own digital currencies that they can sell. While not the first choice for most investors, crowdfunding has grown in popularity in recent years as a way to invest in up and coming blockchain companies. 

Research continues to be the best way to pick promising stocks in any industry, and selecting the right investments in the blockchain business is no different. Although the underlying technology and market involved may differ, the method for selecting promising stocks for investment remains basically the same. 

Blockchain Stock Market Analysis

Investing in many companies directly involved in blockchain development may seem very speculative, although some large companies have indirect involvement in blockchain technology and hence provide exposure to the cryptocurrency market. These companies include well-capitalized and established firms like:  

  • IBM (NYSE: IBM): This blue chip company has invested heavily in the development of blockchain technology and holds the most blockchain patents in the world after Alibaba. IBM has also created the TradeLens global supply-chain platform along with Maersk, the world’s largest container ship operator. This platform uses blockchain technology to streamline shipping efficiency and networks. 
  • Intel (NASDAQ: INTC): In addition to building hardware used for blockchain mining activities, the company’s new Software Guard Extensions (SGX) technology offers hardware-based memory encryption that could benefit AI applications and blockchain transactions. 
  • Overstock.com (NASDAQ: OSTK): This technology-driven e-commerce company’s tZERO Group division is an alternative trading system (ATS) regulated by the Securities and Exchange Commission. The tZERO Group is in the process of digitizing asset classes to trade via a secure ledger.  
  • Square Inc. (NYSE: SQ): A financial services and mobile payments company, Square’s cash app includes a feature that allows customers to buy and sell bitcoins. This should boost the company’s stock price as the app becomes more popular as a way to make cryptocurrency transactions. 
  • NVIDIA (NASDAQ: NVDA): NVIDIA is known for its graphics processing units (GPUs) that can be used to mine cryptocurrencies. This utility has made NVIDIA’s products nearly double in price over the last three years. Demand is expected to grow even further in the future as the use of digital currencies becomes more widespread and their prices rise accordingly. 
  • CME Group (NASDAQ: CME): The world’s leading commodities futures exchange platform recently added bitcoin futures and options on futures to its long list of tradable assets. The exchange has since become the 2nd-largest bitcoin futures platform by the number of open contracts, and it now competes directly with unregulated platforms such as Binance and BitMEX.    
  • Alibaba (NYSE: BABA): China’s leading e-commerce platform also provides enterprise cloud services. The company announced earlier this year that its international platform, known as Tmall, would use blockchain technology to help guarantee product quality. Alibaba also provides its cloud customers a Blockchain as a Service (BaaS) feature to help build mutual trust and efficient collaboration. 
  • PayPal Holding Inc. (NASDAQ: PYPL): The company recently announced it was launching its own cryptocurrency service. PayPal now allows its customers to buy, hold and sell the bitcoin, ethereum, bitcoin cash and litecoin digital currencies on its website and applications. The company also has plans to allow clients to use cryptocurrency to make payments to the 26 million retailers in its network by early 2021.

All of these well-capitalized companies have exposure to cryptocurrencies and the blockchain, so their stocks can be used as blockchain investments since their blockchain exposure is often reflected in their stock prices. This offers a relatively low-risk alternative to buying either cryptocurrencies or the stocks of less established companies involved in blockchain development.  

If you have a higher tolerance for risk, you might want to research smaller companies involved in blockchain development or foreign companies that trade their stock on the over-the-counter market. Some of the more speculative blockchain stocks to consider investing in could include:

  • Limelight Networks (NASDAQ: LLNW): Limelight Networks provides a content delivery service (CDS) network that helps customers improve download speeds, streaming quality and ad capabilities. The company recently added new serverless computing functionality to its platform and expanded its content delivery abilities to support growing demand for online content.  
  • HIVE Blockchain (OTCQX: HVBTF): This cryptocurrency miner was approved to increase its application-specific integrated circuit (ASIC) by 50%, significantly increasing the company’s cryptocurrency production. HIVE’s objective is to bridge traditional capital markets and the blockchain market, and it has partnered with crypto-mining hashrate provider Genesis Mining. 
  • Riot Blockchain, Inc. (NASDAQgs: RIOT): Riot Blockchain focuses on supporting the bitcoin ecosystem through proof-of-work mining. Proof-of-work mining is a method that ensures that each new block in the blockchain is costly and time consuming to be made. The company is among the largest bitcoin miners in North America and has extensive experience with decentralized markets.

How to Buy Blockchain Stock

Well-capitalized stocks like Intel and CME Group can be purchased through any major stock brokerage that lets you trade U.S. stocks. If you instead decide to invest in a foreign stock or one of the less established blockchain companies that trade on the OTC exchanges or on the pink network, then you’ll most likely have to make arrangements with your broker. 

Best Online Brokers for Blockchain Stocks

The best online brokers for blockchain stocks that trade on the major exchanges include TD Ameritrade and E*TRADE, but any major broker that has access to U.S. stock markets would be adequate. For OTC and penny stocks, you might want to check out Charles Schwab, Interactive Brokers, TradeStation or Fidelity. A comparison of some of the best online brokers for blockchain stocks appears below.  

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Blockchain Stock Movers

Lower-priced blockchain stocks tend to be volatile and can move significantly in either direction. The more established and higher-priced stocks with blockchain exposure tend to move with the overall stock market and with other stocks in their industry. A table of significant blockchain stock movers appears below. 

Blockchain Is the Wave of the Future

Some research reports indicate that the blockchain and associated industries could top $28 billion in market capitalization by 2025. The innovative technology and its ramifications have not yet fully impacted society, but once digital currencies become more readily accepted as a secure form of payment, further growth is likely. In fact, blockchain investment via stocks, ETFs or crowdfunding already seems well on its way to becoming the next big wave of the future for equity-oriented investors.

The stocks of companies that have contributed to and stand to benefit from that growth and resulting investment interest could well show notable valuation rises like those seen in automobile stocks in the early 20th century or internet stocks just 20 years ago. As always, remember to perform your due diligence and thoroughly research any potential investment before committing your funds.