When it comes to cryptocurrencies – the digital cousin of traditional (Fiat) money – many of us a familiar with one name – Bitcoin (BTC). However, because the computer code around which Bitcoin was created was made freely available (Open source) to anyone, a number of other flavors of BTC have evolved, each claiming to have resolved some issue or another inherent in BTC.
In fact, today there are over 1200+ versions of cryptocurrencies for investors to choose from. However, not all of them are readily accessible through public exchanges. The 4 tickers listed above are from a broader list of 50+ crypto currencies listed on Yahoo Finance. Anyone interested in crypto investments, would do well to visit the Yahoo Finance Cryptocurrencies page and keep an eye on trading activity there.
Crypto Investments to Consider
For the purpose of this post, we are going to discuss two ways to wade into the vast ocean of crypto investing opportunities. Our “direct” method is based on investing in two popular and promising cryptocurrencies – Ethereum and Litecoin.
1) Ethereum (ETH) is probably one of the more established and well-known Bitcoin spinoffs, even though the two (BTC and ETH) differ significantly. Launched in 2015, ETH aims use the power of blockchain technology to serve a much broader purpose than simply being a cryptocurrency. So, in that regard, the decision to invest in ETH is a more diversified one.
ETH supports cutting edge technology such as Distributed Applications (ĐApps) and SmartContracts which, if it lives up to its promises, will help minimize downtime across the crypto infrastructure, eliminate fraudulent transactions, and facilitate the standardization of 3rd-party interfaces. And speed also differentiates the two. While BTC’s transactions are completed in mere minutes, ETH processes transactions within flashing seconds!
2) Litecoin (LTC) is our next recommendation. Created from the same underlying source code that Bitcoin uses, former Google engineer Charlie Lee created and fine-tuned LTC in 2009 to eliminate some of Bitcoin’s shortcomings. Notably, two Bitcoin constraints that LTC overcomes is speed of transfer, and a more expeditious “mining” algorithm called Scrypt.
As an investor in stocks, you are always conscious about “float” – the number of shares available for you to buy/sell. Float often influences investment decisions: The larger the float, the more likely it is that savvy investors will invest. LTC has a larger “float” (84 million) than Bitcoin’s (21 million). And that makes LTC a more attractive investment choice.
And when it comes to pervasiveness of use, LTC is used to pay for a wide range of items, from airplane tickets and apartments, to coffee, tea and pet supplies.
As can be seen from the technical charts, based on the MACD analysis, for both ETH and LTC, the Signal lines are just turning positive (MACD line is above Signal line). Technicians usually take that as a buying opportunity. If you are of the “wait and see” mentality, perhaps you may wish to pause until the Histogram is firmly positive before making your trade.
3) For the “indirect” approach, we propose investing in stocks of two companies that would benefit from the future proliferation in crypto transactions. Both Square Inc. (SQ) and NVIDIA Corporation (NVDA) are technology companies that are poised to ride the wave of cryptocurrency popularity. SQ is widely acknowledged as a disruptor in payment processing and point of sale transaction solutions. Clearly, as crypto-payments increase in volume, SQs solutions and devices will be in high demand.
As one of the kings in the processor and chip-making universe, NVDA offers great value to miners of cryptocurrencies, as well as merchants accepting crypto payments. In both use cases, the faster the transaction is completed (mined/processed), the more profitable it will be for the individuals and companies involved.
As can be seen from the Price Performance Charts above, both SQ and NVDA have had recent corrections in their prices. Neither stock is exceptionally cheap (trading at forward P/Es of 95 and 31 respectively). However, if you had played cryptos indirectly over the past year, using these two names, you could have had a nearly 30% return in your portfolio.
Industry analysts at RBC Capital Markets see the crypto market booming to a staggering $10 trillion in the next fifteen years or so – a more than 10-fold increase over current market valuation estimates. And while the crypto currencies themselves have significant potential in the coming years, the true value of its underlying technology – Blockchain – is only just being realized.
One forward-looking technological breakthrough, that has enormous potential to unlock even greater value, from today’s crypto currency investments in future, is called Lightning Network – which is still in Beta. The mining of crypto currencies is a computing-intensive operation. And in the process, it uses tremendous amounts of power, and is costly.
By allowing users to conduct crypto-transactions directly with each other (as opposed to doing so with the entire network), and with greater anonymity, Lightning Network promises to not only speed up the transaction process, but also dramatically reduce transaction costs.
So, what does that mean for the value of your crypto currency investments of today? When (and NOT IF!) technologies like Lightning emerge successfully from beta, cryptos will become even more mainstream, and there will be even greater adoption of them among users who are on the sidelines right now. And that means your crypto investments, both direct and indirect, are likely to see a healthy value appreciation!