These investments offer exposure to blockchain. When you hear the word blockchain, chances are you think of bitcoin. After all, the crypto-currency has already made headlines in 2021, with its price soaring to an all-time high of over $41,000 before falling back to earth in the space of a few days. Blockchain, the technology behind bitcoin, is bigger than crypto-currencies.
Blockchain “blocks” are pieces of data stored together. When a block is filled, it is “chained” to a new block, building a chronology of data that makes the blockchain’s information very secure. This means that these digital records are very useful for businesses operating in sectors such as banking, healthcare, supply chain management and so on.
How can investors get in on the action with this potentially game-changing new technology? Start by reading about the six best blockchain stocks and exchange-traded funds to buy in 2021.
Square (ticker: SQ)
Square, the mobile payments company that provides merchant transaction processing and peer-to-peer money transfers via its Cash app, had a strong 2020. Third-quarter earnings included a 140% increase in net income and a 59% increase in gross margin year-on-year.
The real highlight of the earnings report could be bitcoin. Square began allowing customers to exchange bitcoins in 2018, and the investment seems to be paying off. In the third quarter, the Cash app generated $1.63 billion in bitcoin revenue, 11 times more than in the third quarter of 2019.
On top of this, Square purchased $50 million worth of bitcoins in October 2020, an investment that represents around 1% of the company’s assets. Square clearly believes in the future of blockchain technology, and it has begun to reap the rewards of its early investments in crypto-currencies.
Visa (V)
Credit card companies have been quick to realize the potential of blockchain technology in the fintech sector, but Visa was one of the first to act in this area. The company has been making investments in blockchain since 2016, when Visa’s partnership with blockchain infrastructure company Chain gave rise to Visa B2B Connect – a way for businesses to make secure B2B payments using blockchain.
Perhaps the most interesting application of Visa’s investments in blockchain has been to connect credit and debit accounts to crypto-currency wallets such as Coinbase. By allowing Visa customers to convert crypto-currencies into cash, or use crypto-currencies as payment for rewards, Visa is helping to legitimize the technology – and get a piece of the action.
With more than 25 digital currency wallets connected to Visa’s services, the company is fast becoming one of the biggest players in the growing blockchain industry.
Canaan (CAN)
Selling picks and shovels during a gold rush is a tried-and-true method of making money. With the crypto-currency craze, Canaan has been happy to sell the tools enthusiasts need. Mining crypto-currencies requires significant computing power to solve the complex mathematical puzzles from which blockchain blocks are built, and China-based Canaan essentially builds the mining platforms users need to get ahead.
The ever-increasing computing power needed to mine bitcoin faster than the competition has fueled Canaan’s growth in recent years, but the pandemic has put a damper on sales, with revenues dropping nearly 76% year-on-year in the third quarter.
With the price of bitcoin reaching all-time highs, Canaan’s products are attracting a lot of interest, and the company could look forward to a strong fourth quarter. Canaan’s fortunes rise and fall with crypto-currency, and given the recent fluctuations in bitcoin’s price, this investment is not for the faint of heart.
IBM (IBM)
While shares of other tech companies have soared over the past year, IBM has seemingly been left behind. Shares have remained pretty much flat over the past 12 months, with IBM struggling to find a way forward, but one direction the company could be heading lies in the future of blockchain technology.
The company founded IBM Blockchain in 2017 with the aim of developing its suite of blockchain services. Today, it has more than 500 blockchain projects in the pipeline. These include Food Trust, a way for companies like Walmart (WMT) to trace its food supply chain, and World Wire, an international digital payments network. IBM is taking a keen interest in the technology and is betting that it can find a profitable angle, making the stock one of the few blue chips in the blockchain sector.
Siren Nasdaq NexGen Economy ETF
The idea behind blockchain is sound, and its growing acceptance by businesses worldwide means the technology has a future. It’s always wise to hedge your bets. One way to do this is to invest in a blockchain-focused fund, such as the Siren Nasdaq NexGen Economy ETF, which brings together companies from various sectors that research, develop and support blockchain technology. The fund currently has around 70 holdings, ranging from blue-chip companies such as Baidu (BIDU) and JPMorgan Chase & CO.
(JPM) to smaller companies like Galaxy Digital Holdings, giving investors a large basket of stocks to provide a cushion against a sudden shift in public opinion against blockchain technology. The fund has risen by over 55% in the past year, and as more companies start to use blockchain, Siren Nasdaq NexGen Economy will rise.
Amplify Transformational Data Sharing ETF (BLOK)
For investors who can’t pick just one blockchain stock, the Amplify Transformational Data Sharing ETF has you covered. The fund has a narrow focus on the companies under its umbrella: 80% of the ETF’s net assets are invested in companies that are actively developing and using blockchain technology.
Given that this technology isn’t exactly universally used, there aren’t many household names in this ETF’s top 10 holdings. Instead, you’ll find companies like Microstrategy (MSTR) and Marathon Patent Group (MARA).
Investors get a share of 55 different blockchain-focused companies, a strategy that produced a 102% return last year. Many people think investing in blockchain can be risky – and frankly, they could be right. That’s why an ETF like BLOK allows you to diversify your investment in this revolutionary technology.
