For a while, “bitcoin,” “cryptocurrency,” and “blockchain” were the hottest terms in the financial markets. Say any one of those terms, and investors’ ears perked up. Better yet, throw your hat into the ring of the blockchain mania, and your stock quadrupled in value.
But it’s safe to say that this mania is now over.
Bitcoin has come under heavy scrutiny from regulators recently, and that scrutiny has challenged the long-term viability and scalability of the cryptocurrency. Bitcoin prices have found themselves in a steady down-trend, tumbling from $20,000 to under $10,000 over the past several weeks.
Meanwhile, the air is starting to come out of the wheels of all those blockchain stocks that popped up out of nowhere. Long Blockchain Corp (NASDAQ:LBCC), Riot Blockchain Inc (NASDAQ:RIOT), Eastman Kodak Company (NYSE:KODK), and many, many others have all fallen big off their initial blockchain highs.
The bubble has burst. The mania is over. Irrational exuberance has been halted. However you want to put it, the era of bitcoin insanity has come to an end.
But blockchain technology, and the decentralization themes which underpin it, is the way of the future. Now that the bitcoin insanity has come to an end, it is the perfect time to start rationally picking out the winners who are most levered to deliver a successful blockchain and/or crypto product.
Here are my three favorites.
Cryptocurrency Stocks to Buy: Overstock.com Inc (OSTK)
My first pick on this list is perhaps the most obvious selection as a potential blockchain winner, but also the most speculative.
Overstock.com Inc (NASDAQ:OSTK) has become a poster boy for blockchain technology recently. But the e-commerce retailer turned blockchain company has been obsessed with blockchain technology for several years.
Back in 2014, Overstock became the first major digital retailer to accept bitcoin for payments. Around the same time, they also started Medici Ventures, which is focused on investing in emerging crypto-industries. So OSTK isn’t just another company jumping into the blockchain craze. They aren’t a 130-year-old camera company trying to compensate for missing the boat on the digital camera revolution. Nor have they pivoted from making iced teas to investing in blockchain.
Overstock is different. They’ve been in the blockchain world for a while, and have exposure to a portfolio of blockchain companies that cover a diverse application spectrum, including initial coin offerings, digital money transfers, fraud protection and big data storage.
Plus, OSTK does have a traditional e-commerce business which investors can hang their hat on if all else fails.
All in all, OSTK is a good (but not great) blockchain investment. If any of the companies in its diverse Medici Ventures portfolio goes parabolic, then so will Overstock. That isn’t a low probability. But it’s also not a particularly high probability, and therefore, I still label OSTK as speculative.
Cryptocurrency Stocks to Buy: Square Inc (SQ)
I’ll just say it outright: if you are a looking for a way to invest in cryptocurrencies with mitigated risk, Square Inc (NYSE:SQ) is your best option.
Square is a red-hot digital payment solutions provider that has been riding the waves of e-commerce and digital payments to huge gains over the past several quarters. In other words, before any of this bitcoin stuff went viral, SQ stock was excelling at a very high level. Thus, even if cryptocurrencies do go bust entirely, SQ stock won’t be hurt that badly because its operating business is rock-solid and has big growth prospects in e-commerce (even without any cryptos).
Risks are mitigated, but upside is potentially huge.
Recently, SQ Chief Executive Officer Jack Dorsey tweeted that Square’s Cash App customers can now buy, sell and hold bitcoins through its app. That is a pretty big development because if bitcoin does get universally accepted as a payment method, than Square usage will jump.
Bitcoin is just the beginning. Say bitcoin gets replaced by another cryptocurrency. Well, Square can just add buy and sell capability of that cryptocurrency on its platform, as well. Therefore, instead of being a pure play on bitcoin, Square is a pure play on all cryptocurrencies.
If that tide continues to rise and Square transforms into a go-to marketplace for cryptocurrency transactions, SQ stock could soar. If the tide falls and cryptocurrencies go bust, Square stock won’t be hurt that much because its operating business aside from cryptos is very strong and very valuable. It’s as close to a win-win as you’ll find in the blockchain world.
Cryptocurrency Stocks to Buy: Facebook Inc (FB)
My last pick on this list is the one most likely to draw some raised eyebrows. But when it comes to adopting a new technology and making it work at scale, don’t count out Facebook Inc (NASDAQ:FB).
Nothing has been officially said yet about Facebook jumping into blockchain or cryptocurrencies, but given the company’s recent actions and statements, I think it’s likely that Facebook launches its own cryptocurrency rather soon.
At the beginning of 2018 (and amid all the bitcoin buzz), Facebook Chief Executive Officer Mark Zuckerberg wrote in his company’s 2018 mission statement that he was going to “go deeper and study the positive and negative aspects” of blockchain and cryptocurrency technology. In that statement, his wording strongly implied that he felt Facebook and blockchain shared similar decentralized principles, and that Facebook could dive into blockchain-related investments rather soon.
A few weeks later, Facebook is banning all ads for bitcoin, cryptocurrencies and initial coin offerings. They are doing so under the guise that these are promotional posts which mislead users and add no value. While that may be true, I think there is something bigger at play here.
Zuckerberg has a history of taking someone else’s core technology, replicating it and making it work at scale throughout Facebook’s massive ecosystem. See Instagram Stories. Or WhatsApp Status. Or even the redesigned News Feed, which is supposed to promote more personal interactions (Snap Inc (NYSE:SNAP) announced a design overhaul several weeks earlier that was aimed at separating friends form brands and promoting more personal interactions).
It doesn’t take a rocket scientist to connect the dots here. Although I don’t think it’s 100% happening, I think there is a markedly greater than 50% chance that Facebook launches its own cryptocurrency rather soon.
And if they do, that would make FB stock the best way to play the cryptocurrency boom. Facebook is already an exceptionally valuable company with huge revenues, huge growth, huge profits and huge cash flows, so risk to the downside from a cryptocurrency bust is limited. But upside potential could be astronomical if Facebook makes cryptocurrency truly mainstream (like they did for social media).
Overall, I’m long FB stock because I love the current operating business and the valuation. But a cryptocurrency boost could be a reason to buy more.
As of this writing, Luke Lango was long FB and SQ.