In a major reshuffle of its management team recently, the largest of its kind since the company was founded, Facebook (NASDAQ: FB) unveiled a slew of new appointments and promotions. One striking new development was the creation of a dedicated team to explore the use of Blockchain technology. But what about the other “hot topic” that investors were chasing just a few months ago – Bitcoin? Is that still an investment worth pursuing?
Let’s take a close look at both investment thesis.
Before we toss the coin to reveal whether Bitcoin or Blockchain is the better investment, lets understand some nuances associated with both these terms.
As potential investors, you need to understand that Blockchain and Bitcoin are two separate concepts, and therefore rate differing investment considerations. Bitcoin is one of the more popular digital currencies (also called Cryptocurrencies) out there, while Blockchain is the technology that drives the decentralized ledger underpinning Bitcoin.
Many investors use these terms synonymously, which is wrong; and the reason for the misconception lies in the fact that Bitcoin and Blockchain were released as a “package” in 2008, when the Cryptocurrency was initially released in open source form. The fact is that, while Blockchain is the technology, Bitcoin cryptocurrency was the first real-world application of that technology.
All clear as mud – I hope? Don’t worry, we’ll explore the investment thesis for both of these opportunities.
As a technology play, Blockchain investments are better suited for investors who are in this for the long haul. That’s because the underlying Bitcoin technology has applications beyond the Cryptocurrency world.
Two Blockchain investment ideas are Reality Shares Nasdaq NexGen Economy ETF (NASDAQ: BLCN) and Amplify Transformational Data Shrg ETF (NYSEARCA: BLOK). Since these (relatively new!) vehicles hold a broad basket of investments that, directly or indirectly, have exposure to Blockchain, your portfolio will be fairly diversified and de-risked.
A more direct Blockchain investment idea is to invest in companies that are actively working to promote Blockchain and related technologies and solutions. One such company that investors should look closely at is International Business Machines Corp. (IBM). Big Blue has invested significantly in developing business-use Blockchain solutions and, most importantly for investors, is considered one of the early pioneers of such use.
If you’ve had your eye on the headlines recently, you’ve probably seen the wild gyrations that the price (in USD) that Bitcoin has experienced. If you can stomach that type of volatility – and all indications are that’s what you should expect in the near to mid-term – then Bitcoin might be more to your liking. Perhaps you should look at it as a trading opportunity instead of a long-term investment?
The most direct way to invest in Bitcoin is to buy the currency (BTC-USD) at one of a number of Crypto-exchanges online. Coinbase might be a good place to start your search for a good entry point.
As of the time of this writing, the Securities and Exchange Commission (SEC) has not approved the listing of any ETFs that track Bitcoin. However, there are a number of players that have made representations to the SEC to move forward with such approval. One of the more promising backers of Bitcoin-tracking ETFs is CBOE Global Markets, Inc. (CBOE). In the absence of an ETF, perhaps investing in a proponent like CBOE might be a good way to add some indirect Bitcoin torque to your portfolio.
Heads or Tails?
A look at the performance of BLOK, BLCN and BTC-US, indicates that investors would have done well if they had added any of those names to the portfolio 6 months ago. Both BLOK and BLCN, the Blockchain-linked ETFs, have delivered comparative returns in the low to mid 60s. A direct investment in Bitcoin (BTC-USD) would have resulted in in gains in the low 40% range – not something to shrug off either!
However, the ride for Blockchain investors would have been much smoother, while Bitcoin investors would likely have lost a lot of sleep earning their 40%+ return.
On a comparative basis, Blockchain has still outperformed Bitcoin (represented by CBOE) over a 1-year period. Even adjusting for the fact that BLCN hasn’t been around very long, it’s 2.2% rise (versus a -4.9% decline) over a 3-month period highlights that Blockchain definitely offers some longer-term investment potential.