When Gartner says blockchain tech will develop a business value of $3.1 trillion by 2030, the research and consulting firm isn’t overblowing the numbers.
How To Invest In Blockchain?
Blockchain has been gaining relevance over the years as a decentralised infrastructural layer for companies in sectors such as supply chain, banking, government, healthcare, finance, digital identity, etc.
Blockchain technology has always been idolised as a novel tech with groundbreaking utilities. However, few of us consider investing in blockchain despite its rapidly finding mainstream use cases.
This article is an attempt to break that norm and discuss ways how to invest in blockchain.
There are many ways you can engage in blockchain investment. The most popular ways include blockchain stocks, cryptocurrencies, ETFs (exchange-traded funds), blockchain startups, etc.
Though blockchain has gained mainstream traction due to cryptocurrencies, it is only one use case for blockchain. Yet Cryptocurrencies are worth trillions in valuation and remain the most notorious, volatile, and heavily profitable investments if done with know-how and foresight.
Then some companies develop new products that use blockchain, such as Walmart, Amazon, Google, and IBM, or provide allied hardware/software used to set up a blockchain network, such as Nvidia, Microsoft, etc. Investing in these blockchain stocks can be another way to invest in blockchain.
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Interesting Fact: Nvidia recently became the most valuable company in the world, with a market capitalisation of$3.34 trillion, overtaking Microsoft ($3.32). Nvidia’s shares have seen a jump of 170% since the start of 2024.
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Blockchain ETFs are the most safe bets among blockchain investments. Popular ETFs include the Bitwise Crypto Industry Innovators ETF (BITQ) and the Amplify Transformational Data Sharing ETF (BLOK).
Several promising blockchain startups, such as Circle, Ripple, Coinbase, and many more, are making it big globally.
The list for blockchain for real estate firms also includes some notable names like Blocksqaure, RealT, Blockchain App Factory, and many more.
All of the above blockchain investments may provide great returns but can be placed distinctly in a broad risk-return spectrum. This article discusses each blockchain investment in detail, but let’s first jump into the fundamentals and utilities blockchain tech brings.
What Is Blockchain?
A Brief Overview of Blockchain Technology
Blockchain is a distributed ledger shared across a network of computers. These computers are called the nodes, and their job is to verify transactions based on the blockchain’s consensus. Every transaction gets recorded on the blockchain chronologically and is cryptographically protected.
The approved transactions are added in groups called blocks to the blockchain. Once added, the block cannot be removed, manipulated, or reversed. All the nodes have a copy of this distributed ledger, which gets updated in real-time and can be accessed by anyone having permission to view it.
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Interesting fact: Do you know Bitcoin isn’t the first attempt at a decentralised database?Pioneers like Merkle and his tree, Chaum and digital cash, Haber and timestamping, Dwork and proof of work (PoW), Black and hashcash, Finney and reusable PoW mark the early years of the pre-blockchain era.
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The Bitcoin network was the first to use distributed ledger technology to solve the problem of double counting in online transactions and make peer-to-peer online payments possible without the involvement of any third party or central authority. It was the first true blockchain.
Satoshi Nakamoto's Statue in Lugano
Beyond cryptocurrencies, enterprise blockchains help to vastly reduce the cost and complexity of processes across industries, government agencies, and social institutions.
Why Blockchain Is Changing the Investment World
You might wonder how a decentralised database can benefit businesses and bring them value.
“Blockchain will do for transactions what the Internet did for information.”
Ginni Rometty
Ex-CEO, IBM
Picture this. A group of institutions can come together and use the shared database that blockchain is to jointly convene business and transact with each other. The Onyx blockchain is a good case study. The Onyx blockchain platform has Goldman Sachs, DBS Bank, and BNP Paribas, besides JPM, as members. The members use the blockchain to instantaneously transfer and settle multi-bank, multi-currency assets and exchange payment-related information.
Here’s an interesting perspective from an ebook by IBM titled Blockchain for Business, which states, “Most technologies can be implemented one business at a time. Not so with blockchain. Blockchain is particularly valuable when applied to a collection of companies working closely together as a business ecosystem, such as a supply chain.”
Blockchain Use cases
Supply chain, banking, government agencies, and healthcare are some sectors where blockchain brings transparency, security, immutability, and efficiency. Take, for instance, the supply chain management (SCM) systems. A single supply chain involves numerous stakeholder firms. A blockchain-based SCM platform allows each stakeholder to gain real-time, verified information on the production cycle, eliminate fraud and manipulation and manage inventory at a much lower cost and complexity.
Shared ledgers can prove the common grounds of consensus for each stakeholder. Blockchain adds much-needed freedom coded well into its infrastructure, where each player plays off in their own fashion while being fully aware of the moves of the others in real-time.
Why Invest in Blockchain?
Growth Potential
Blockchain tech presents endless opportunities–from cross-border payments to food safety, trade finance, digital rights management, royalty settlements, land registries, and more. Gartner says blockchain-powered solutions will potentially govern 10% to 20% of the global economic infrastructure by 2030.
In 2022, the global blockchain market had an estimated valuation of $7.4 billion. By the end of 2027, the market is expected to generate revenue of $94 billion at a compound annual growth rate (CAGR) of 66.2%.
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Interesting Fact: The world's first $1 billion company was from the steel industry in 1901. It took 117 years for the next company– technology giant Apple–to become the first-ever company to reach a$1 trillion valuation in 2018.
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As blockchain adoption gathers heat, worldwide spending will spike in verticals such as manufacturing, distribution, agriculture, the public sector, and finance. Over 30% of the current blockchain solutions are used in finance. PwC says that 61% of companies seek digital transformation, and blockchain is among their priorities.
Diversification Opportunities
Traditional assets usually move and sway in the same direction, depending on intra-sector conditions, macroeconomic factors, and geopolitical issues. Blockchain investments can provide much-needed diversification to your investment portfolio.
Cryptocurrencies like Bitcoin, Ethereum, etc., provide a hedge against inflation and provide alternative investment opportunities via decentralised finance (DeFi), non-fungible tokens (NFTs), ICO investment (initial coin offerings), security token offerings (STOs), derivatives, stablecoins, tokenised assets (RWAs), etc.
Read more about security tokens in this article by NFT.EU.
Different Ways to Invest in Blockchain
You can include multiple assets in your blockchain portfolio, each having a different risk-return ratio and level of exposure. Let’s discuss the major classifications for blockchain assets worth investing in.
Blockchain Stocks
There are so many public companies today that incorporate blockchain into their processes. Many are actively involved in blockchain development or offer blockchain-powered solutions to customers.
Some of the top stocks of blockchain projects include names like:
Nvidia: It is one of the leading manufacturers of graphic processing units (GPUs), an important component in crypto mining software, gaming, and artificial intelligence.
Amazon: The world’s largest e-commerce platform also provides blockchain services to customers via Amazon Managed Blockchain under its flagship cloud infrastructure service, Amazon Web Services (AWS).
Mastercard: A known name in crypto circles, Mastercard has announced partnerships with several blockchain companies and allows its customers to buy cryptocurrencies using its cards.
Block: Formerly known as Square, Block is a financial technology company. One of its products, CashApp, allows users to buy and sell Bitcoin. Block has a crypto wing called Spiral and an open developer platform for blockchain applications called TBD.
IBM: IBM is synonymous with blockchain technology solutions. It provides blockchain solutions to Home Depot, Albertsons, and Renault and is involved in many other blockchain initiatives.
A blockchain ETF includes the share of one or more publicly listed companies whose financial success is related to blockchain tech. Blockchain ETFs are an indirect way to invest in the blockchain market and are often considered the least risky investment mode.
For instance, a blockchain ETF may consist of IBM, Microsoft, and Mastercard stocks. By investing in this hypothetical ETF, you will be investing a little bit in each of the companies that are part of this ETF. There are quite a few popular blockchain ETFs:
SRN Advisors’ Siren Nasdaq NexGen Economy ETF (BLCN), Amplify’s Transformational Data Sharing ETF (BLOK), and First Trust’s Indxx Innovative Transaction & Process ETF (LEGR) are available in the US market.
In Europe, Iconic Funds, Wisdom Tree, CoinShares, ETC Group, and 21Shares offer funds with underlying assets such as Bitcoin, Ethereum, Tezos, Polkadot, and other cryptocurrencies.
If you have not been living under a rock, you would see the launch of Bitcoin ETFs in January 2024, followed by Ethereum ETFs months later. Big asset management firms and institutions like BlakcRock, Grayscale, Bitwise, VanEck, and others provide BTC and Ether ETFs.
Direct Cryptocurrency Investments
Cryptocurrency investments are the most direct way to invest in blockchain.
You can trade or invest in cryptocurrencies like Bitcoin, Ethereum, XRP, and hundreds of other tokens via centralised exchanges (CEXs), decentralised exchanges (DEXs), or even P2P marketplaces. Top CEXs include names like Coinbase, Binance, KuCoin, etc. Examples of DEXs include PancakeSwap, UniSwap, etc.
Cryptocurrency investments are risky, and returns can fluctuate wildly due to the volatility and lack of regulations. The crypto sector also has decentralised finance, or DeFi, where investors can invest to earn good yields and passive income. Users can earn interest on deposits, borrow, or derive yields from staking, yield farming, and other DeFi opportunities.
NFTs, gaming tokens, meme coins, metaverse, and other sub-sectors within the crypto industry can also be worth investing in, but the crypto market should be threaded with caution and DYOR.
Blockchain Startups
Today, many companies are developing innovative use cases and value-driven applications, such as those in DeFi, Blockchain-as-a-service (BaaS) and blockchain-based product development.
Venture capitalists invest in pre-seed and seed rounds of these fresh startups, but VC rounds are not open to individual investors seeking to invest in them. For retail investors, there are Initial Coin Offerings (ICOs), which allow investors to buy tokens for an early-stage blockchain startup.
ICOs are unregulated and have often been misused by malicious players and fraudsters. Instead, Initial Exchange Offerings (IEOs) offer greater reliability and transparency. IEOs allow investors to buy tokens directly on cryptocurrency exchanges rather than via the project’s website, allowing for thorough vetting and verification of the listings.
You can check Cryptorank and other websites to check all upcoming ICOs, IEOs, and IDOs.
Blockchain and Real Estate
Despite being the largest asset class in the world, real estate remains the most conservative and least flexible sector. Real estate companies realise the importance of tokenisation to digitise and fractionalise property over a blockchain. By doing so, real estate prices can be optimised, payments can be streamlined, and access to new investment opportunities can be ensured.
Tokenised real estate platform MetaWealth tokenised the first co-working space in partnership with Superteam UK. Propy and DeFi protocol Parcl announced a ‘strategic partnership to enhance the analytics of all on-chain real estate. Some other stocks/tokens worth considering include RealBlocks, Closinglock, Inc., CPROP, RealIT, Chainlink, Harbor, Mogl, BitRent, etc.
Read more about how blockchain is changing real estate in this article by NFT.EU.
Risks and Considerations of Blockchain Investing
Volatility and Market Risk
While investing in the blockchain market can be promising and rewarding, it isn’t devoid of risks and volatility, since blockchain is still a growing industry. The crypto market is especially prone to high price fluctuations.
Regulatory and Legal Concerns
You must also understand the regulatory challenges that blockchain faces. States and institutions are still assessing the tech and its use cases and steadily developing regulations and legal compliance to ensure investor protection and legitimate markets.
The universal regulations concerning reporting, broker-dealer requirements, Anti-money laundering (AML), know-you-customer (KYC), licenses for security exchanges, data protection acts, etc., apply to blockchain investments.
Blockchain as a technology bears risks associated with smart contracts, hacks, unauthorised access, and poor management of cryptographic keys.
Read this detailed analysis of security risks posed by blockchain in these articles by Deloitte and KPMG.
How to Start Investing in Blockchain
Do Your Research
One cannot stress the importance of doing one's own research when investing in general. However, because blockchain investments are a relatively new asset class, they need research, know-how, and analysis even more.
The crypto market, especially, sees a lot of rug pulls and scams and lacks regulations for investor protection. Become a part of Reddit communities, Telegram channels, and Discord groups, stalk the projects you are interested in on Twitter and their official website, read their whitepaper, and find out more about their teams before you set your mind to bet your money on them.
You can also seek help from credible sources, such as government reports and expert reviews. For instance, this crypto scam tracker by the Department of Financial Protection can be an easy tool for navigating the crypto space.
Acclimatise yourself to how the tech and its markets work. The more learned you are, the more safe bets you place.
Create a Strategy
Always have a well-defined strategy at hand before you start investing. Determine your portfolio's exposure to blockchain assets; if you are new, keep it under 5% of your total assets. Also, determine the level of risk you can afford and only invest what you can afford to lose in cryptos.
Blockchain stocks and ETFs are much safer and more regulated than crypto and are apt for conservative investors. Create a blockchain investment strategy based on risk tolerance, investment goals, and time horizon.
Most trading platforms, including TradingView, offer options to mimic experts or engage in predetermined strategies. Crypto presents alternative income-earning opportunities in DeFi, yield farming, staking, liquidity pools, etc.
You can also use DCA (dollar cost averaging) to deposit a fixed amount in blockchain stocks, crypto, or other investment instruments.
Choose a Platform or Broker
Once you have decided on the strategy for your blockchain portfolio development based on your risk profile, it is prudent to consider the choice of platform or broker.
Always choose a reliable exchange or broker platform and consider the trading fees and any other hidden charges involved. For cryptocurrencies, storing your digital assets in a non-custodial wallet is best, where you are responsible for your private keys.
Conclusion
Blockchain assets can add diversification to your investment portfolio while bringing handsome returns. The blockchain market is relatively new, and early investors will benefit the most from the boom. Educate yourself, DYOR, and navigate the blockchain markets with ease. Choose what kind of blockchain investment suits you best, and get started with investing today,
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