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How to invest in blockchain stocks
The blockchain industry is booming with increased interest in cryptocurrencies, its best-known use. These stocks and ETFs let you play the surge.
Blockchain technology is gaining traction as cryptocurrencies reach new highs and increase adoption. A way to get in on the action is by investing in blockchain stocks. We break down the benefits and risks of investing in them — and how to trade them.
What are blockchain stocks?
Blockchain stocks are shares in companies like IBM (IBM) and Square (SQ) that use blockchain technology in their applications. Blockchain stocks are limited in major exchanges, but you can find stocks from businesses involved in blockchain technology — crypto mining hardware startups, Bitcoin exchanges, supply chains and more.
Blockchain technology uses a decentralized public ledger that records transactions and payments. It’s a peer-to-peer application — meaning no third parties — that paves the way for faster financial, medical and other transactions, each combined into timestamped blocks connected to one another in a never-ending chain.
With each passing year, it’s become more common for businesses to get involved in this rising technology. Even Google Cloud inked a deal in 2020 with venture-backed blockchain company Theta Labs that allows Google Cloud to run nodes of Theta’s blockchain network.
Why invest in blockchain stocks?
Blockchain is an emerging technology that can help companies conduct business more efficiently. Statista projects the size of the blockchain technology market to increase from $7 billion in 2021 to $39.7 billion by 2025.
Here are some ways blockchain can help companies grow their business and add value, which in turn could mean bigger profits for shareholders.
- Security and privacy. The blockchain replaces sensitive data required to buy stocks, currencies, bonds and commodities with a secure token. That potential for stronger security and privacy makes it a highly sought-after technology for investors.
- More efficient transactions. Blockchain helps companies settle transactions more quickly and efficiently than methods that rely on paperwork and processing of sensitive information. Records are encrypted and kept securely within a single digital ledger, saving time and money — and increasing value to investors.
- Data security and privacy. Data on a blockchain ledger is signed, encrypted and cross-checked by the network. To hack into the ledger, you’d need access to each device holding a copy of the transaction history. By limiting the potential for data breaches, blockchain technology bolsters consumer — and investor — trust in a company over competitors.
Risks of investing in blockchain stocks
A look at the headlines can give any investor room to pause, what with spikes and dips that can vary by the hour, among other potential drawbacks.
- Regulatory uncertainty. Governments around the globe are considering how to regulate cryptocurrencies in an effort to thwart their use in illegal transactions. Bitcoin and altcoins underlie blockchain technology, making its future unclear.
- Volatile market. Based entirely on supply and demand, cryptocurrency is subject to rapid and unpredictable changes that make its value harder to predict than, say, currencies or stocks.
Main stocks for you to invest in when putting your trust in the blockchain include:
- Nvidia (NVDA). The company’s GPUs are vital hardware components when it comes to mining cryptocurrency. Mining hardware is not Nvidia’s main business, but it could become more important if cryptocurrency prices increase.
- CME Group (CME). A main platform for buying Bitcoin futures, CME is fully regulated and gives investors a legal avenue for future Bitcoin price speculation.
- Square (SQ). This merchant services company is a blockchain through its Cash App, helping users to more easily buy and sell Bitcoin. Square also has a team of bitcoin developers known as Square Crypto. More than $500 million in Bitcoin was sold on its platform in 2019.
- IBM (IBM). IBM Blockchain offers solutions for clients like Kroger (KR) in the form of ticket-authentication company True Tickets. This stock could become more relevant if blockchain solutions continue gaining in popularity.
- Canaan (CAN). This Chinese business makes hardware that is used in cryptocurrency servers and mining.
- Bank of America (BAC). BofA has created a large number of blockchain patents — more than even Google or Microsoft.
- Alibaba Group (BABA). Alibaba has amassed more than 100 blockchain patents and uses blockchain in such subsidiaries as Lynx International.
What ETFs track blockchain stocks?
Three main ETFs track blockchain stocks are:
- Reality Shares NextGen Economy ETF (BLCN). Reality Shares and Nasdaq partnered to create this ETF that seeks long-term growth by tracking investments in the Reality Shares Nasdaq Blockchain Economy Index. It invests in large-cap tech stocks in developed markets. The fund has net assets of $188.34 million as of January 2021 and invests 31% of its assets in software and services.
- Amplify’s Transformational Data Sharing ETF (BLOK). The BLOK ETF has an expense ratio of 0.70% and a price of $37.15 as of January 2021. It’s an actively managed fund that’s included such holdings as Square, Overstock (OSTK) and Taiwan Semiconductor (TSM).
- Innovation Shares NextGen Protocol ETF (KOIN). This large-cap ETF invests in growth stocks and has Taiwan Semiconductor, Nvidia, and PayPal (PYPL) as its top three holdings. It has an expense ratio that’s higher than others at 0.95%.
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Crypto trading platforms
Popular among investors, cryptocurrency is mined using blockchain technology. Top online brokerages that let you trade blockchain stocks as well as cryptocurrency like Bitcoin include:
- Webull. This commission-free trading platform offers detailed stock charts that allow for short selling. It’s ideal for active traders with less than $100K to use for funding — and for swing traders too.
- TradeStation. This platform is ideal for higher-earning active traders with experience. It offers strong customer service and high-level market data to make informed trading choices.
- TD Ameritrade. Both active traders and beginners can benefit from this quality trading platform. It also has $0 commissions on online stocks, options, and ETFs and good customer service.
The future of the blockchain industry
Worth $3 billion in 2021, the global blockchain technologies market is expected to reach $39 billion by 2025. Projections are supported by the fact that blockchain technology is beginning to mature, and companies are more confident they can use it to add value to their business.
A 2020 blockchain trends study from Deloitte found that 40% of businesses plan to invest more than $5 million in blockchain in 2021. Adopting this technology would mostly settle in data validation (43%), data access sharing (40%) and identity protection (39%). Today, more than 60% of blockchain’s market value is concentrated in the financial sector.
This doesn’t mean you should invest in blockchain stocks without due diligence. In fact, some companies have put “blockchain” in their names and saw share prices spike, without any clear evidence of whether it could add value to their business.
And keep in mind that the blockchain industry is young. A 2020 outlook study by Gartner notes that while it has the potential to transform industries and the overall economy, blockchain is expected to mature as it becomes more scalable and better integrates with, for example, AI and the Internet of Things.
Blockchain stocks can yield great results for those looking to invest in a disruptive, future-thinking technology. But don’t overlook the risks inherent in these highly unregulated and volatile investments.
Frequently asked questions
- “Google Goes Blockchain? New Deal Opens a Door to Crypto,” Forbes, May 27, 2020
- Size of the blockchain technology market worldwide from 2018 to 2025, Statista, 2021
- 5 Blockchain Trends for 2020, Deloitte, March 2020
- “A dozen companies that reaped rewards by putting ‘bitcoin’ or ‘blockchain’ in their name,” Quartz, January 12, 2018
- Gartner Top 10 Strategic Technology Trends for 2020, Gartner, October 21, 2019
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