Even with new technologies emerging, there still are categories that have not seen much innovation. Just look at currencies. The general system has not changed very much, at least in terms of the process, such as how payments are made through financial institutions.
Bitcoin could change all that, and along the way. If you’re shy about investing in cryptocurrencies, investing in companies that use adjacent technologies, like International Business Machines Corp. (NYSE:IBM).
Here’s how:
With the strong growth in the Bitcoin price, there are many investors who think that traditional currencies could be poised for disruption.
Bitcoin is a digital currency that was launched in 2009, that has no transaction fees and is not controlled by a government. Oh, and you can make payments anonymously.
At the heart of the Bitcoin price is a super-sophisticated algorithm that manages the creation of the currency.The system caps the number at 21 million, and, as of now, there are over 16.6 million in circulation.
So to create more bitcoins, there is a need for miners, people who use their own computing power to verify transactions. This is done by putting together blockchains. So when there is verification, a miner will be rewarded with 25 additional bitcoins.
Kind of complicated, right? Definitely.
Although, to get bitcoins, you do not have to go through the mining process. Rather, you can purchase them on the open market, such as via your Apple Inc. (NASDAQ:AAPL) iPhone or Alphabet Inc (NASDAQ:GOOGL) Android device.
But there are some big-time issues. First of all, you must store the bitcoins in some type of digital wallet. However, what if this is hacked? Well, if so, you could be out of luck.
Next, the Bitcoin price is at lofty levels. Consider that it is currently at $6167.95! And the volatility has been extreme. For example, during March, there was a 25% plunge and then there was a drop of 35% in September.
How to Play the Bitcoin Price
Yet there is a way to get exposure to Bitcoin. Invest in companies that build technologies for the digital currency. Some of the obvious choices include Advanced Micro Devices, Inc. (NASDAQ:AMD) and NVIDIA Corporation (NASDAQ:NVDA). These companies develop high-end chips that allow for mining.
But there is another angle: invest in companies that build blockchain systems. As InvestorPlace.com’s Dana Blankenhorn has noted:
“[B]lockchain is what matters. Bitcoin — all cryptocurrencies — are merely implementations of blockchain, a general ledger database in which each block of data is encrypted. It allows decentralization of trust, which is essential to commerce.”
And one of the top players in the blockchain category is IBM.
Keep in mind that the company’s next-generation mainframes – which have huge amounts of processing power – are spot-on for blockchain. What’s more, as seen in the latest quarter, IBM has been getting quite a bit of traction signing up partners for its efforts.
Just some include Wal-Mart Stores Inc (NYSE:WMT), Unilever plc (ADR)(NYSE:UL) and UBS Group AG (USA)(NYSE:UBS).
For the most part, customers see blockchain as a next-generation way to securely store and share critical information. So yes, the technology has wide-scale applications.
As for IBM, the company can leverage its global infrastructure, its emerging cloud platform, the Watson AI system and its large network of talented consultants.
The good news is, as indicated in the latest quarter, the company already is showing signs that its strategy is beginning to take hold.
What’s more, IBM has a solid dividend of 3.9%. Granted, do not expect soaring returns. But then again, you will also not be subject to the potential wide swings from the Bitcoin price either.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
