For me and probably most other people, 2021 was the year of the cryptocurrency, at least as far as investment-related themes are concerned. True, the equities sector enjoyed another brilliant performance over the past 365 days. However, cryptos really came alive last year, blitzing to previously unfathomable heights. While this dynamic bolstered individual digital assets, some investors may be better served with blockchain stocks to buy.
Now, let me be clear before we move any further. Whenever you’re dealing with virtual currencies, whether directly or via blockchain stocks, you’re taking a huge risk. Yes, I’m a proponent of cryptos in general and I’ve benefitted handsomely from this sector. At the same time, I’m a realist and I believe you should be too. Cryptos are still unproven and therefore prone to volatility. Thus, only engage with money you can afford to lose.
Having made the attorneys happy, one of the major problems about playing cryptos is that this action involves both market risk and administrative risk. As with any high-beta sector, you never know where a virtual currency ends up. But unlike traditional investments, you also must worry about nefarious activities that could destroy your entire holdings. That’s a major advantage for blockchain stocks.
Of course, everyone must be concerned about digital security, including those who venture into blockchain stocks. But with cryptos, even if you keep your account security on the up and up, the underlying blockchain network itself can came under attack. Or in a much more common scenario, the exchange holding your funds could suffer a breach, causing much consternation.
But when you deal with the blockchain as an industry, you’re somewhat akin to a ticket seller to a game rather than a gambler on a specific outcome. Indeed, the spectrum of opportunities with blockchain stocks is vast, as you can see below.
- Nvidia (NASDAQ:NVDA)
- IBM (NYSE:IBM)
- VMware (NYSE:VMW)
- Visa (NYSE:V)
- DocuSign (NASDAQ:DOCU)
- Riot Blockchain (NASDAQ:RIOT)
- Aetherium Acquisition Corp (NASDAQ:GMFIU)
While blockchain stocks feature many advantages over buying cryptos directly, they also incur some disadvantages. Primarily, these securities are tied to businesses. Thus, even if the underlying assets perform well, if the business performance is lacking, you could incur losses. Therefore, conduct your due diligence before proceeding.
Blockchain Stocks: Nvidia (NVDA)
Although not technically one of the blockchain stocks, Nvidia has become so vital to the underlying technology’s development that I’d be remiss not mentioning it. As you may know, while many networks are transitioning to the less-energy-intensive proof-of-stake (PoS) protocol, most early blockchains incorporate proof-of-work (PoW).
To make a long story short, PoW protocols emphasize strong computing power as crypto miners compete to solve algorithmic equations to receive the right to verify transactional data within the target blockchain. Victorious miners receive crypto coins or tokens as a reward for their troubles. Usually, the more popular and viable the network, the harder the mining difficulty but the greater the rewards.
Thus, while all eyes are gravitating toward PoS, there’s an argument to be made that PoW is the more viable protocol. One major point is that with PoW, miners have a vested interest in the system they’re engaging in because of their sunk investments, such as utility bills and buying graphics processing units.
Therefore, the crypto community may still need Nvidia GPUs for years to come, making it one of the most relevant blockchain stocks to buy.
Invariably, when people think about IBM — if they’re thinking about it at all — many will point to its legacy businesses. In other words, Big Blue, as the company is known, may have been relevant in a bygone era. But with greater emphasis on cloud computing and the digitalization of everything, old tech computer tech is fading in the rearview mirror.
However, people should no longer focus on IBM’s past endeavors as what the new Big Blue is doing is far more interesting. For instance, with the landmark acquisition of Red Hat, IBM has strong ties to open-source solutions like Kubernetes, enabling the company’s enterprise-level clients to run and manage data both on-premise and on the cloud.
As well, IBM is also one of the underappreciated blockchain stocks, leveraging decentralized systems to facilitate seamless data exchange and workflow automation in ways never previously imagined. While blockchain is inseparable from the cryptocurrency concept, the platform can also spark efficiencies in supply chains and other legacy procedures.
Plus, IBM is levered to multiple other businesses such as cybersecurity and artificial intelligence; meaning, if cryptos tumble, IBM can still move forward.
Blockchain Stocks: VMware (VMW)
A cloud-computing and virtualization technology firm, VMware primarily helps modernize businesses by integrating their infrastructure with cloud-native apps along with updating existing apps. From there, the company’s multi-cloud architecture facilitates multiple operations under a single (and thereby easily manageable) control center.
On paper, VMware is one of the most relevant enterprises. Additionally, because of the broader impact of the coronavirus pandemic, the tech firm became more pertinent thanks to its distributed workforce platform, enabling a seamless transition to the great telecommuting experiment of 2020. Despite the many positives, VMW slipped over 16% last year, presenting some worries for onlookers.
Although VMW is one of the riskier blockchain stocks, contrarians and discount divers may want to give it a shot. Through its decentralization platform, VMware leverages the power of the blockchain to introduce efficiencies in procedures that require multiple points of trust and verification.
For instance, VMware can potentially help enterprises quicken global supply chains, which involve several moving parts. In addition, the company’s blockchain solutions can aid healthcare organizations with managing a deluge of paperwork swiftly and, most importantly, accurately.
While the term blockchain stocks implies a disruptive evolution that weeds out non-decentralized entities, the overriding reality is that several of the top companies in the world are embracing decentralization, not attempting to suppress it. Perhaps the soaring valuations of individual cryptos made top enterprises realize that this is no ordinary fad.
One global organization that has embraced the decentralized payments revolution is Visa. It might seem strange that one of the biggest credit issuers is moving into the blockchain space but several synergies exist. For instance, a purely decentralized ecosystem might not work because consumers invariably have become accustomed to the protection and insurance that major financial institutions provide.
As such, Visa offers a viable middle ground, using advanced cybersecurity mechanisms to help prevent fraud associated with crypto purchases. Moreover, Visa facilitates a platform for stablecoin payouts, which are cryptos pegged to the U.S. dollar. In this manner, the financial firm bolsters merchant-customer relations through additional payment options.
Most likely, you’re not going to get rich with V stock because it’s still tied to the centralized fiat monetary system. Still, it offers one of the most workable solutions, making it a worthwhile consideration among blockchain stocks.
Blockchain Stocks: DocuSign (DOCU)
One of the strongest fundamental winners of the Covid-19 era (so to speak), DocuSign was already a relevant idea before the pandemic due to the burgeoning use and frequency of e-signatures. With the innovation, service providers and customers didn’t have to wait to send contractual documents via mail or private courier. Instead, they could just email each other.
It’s much quicker, more convenient and, most importantly, cheaper. All those things were true when the pandemic struck, with the addition of one more crucial attribute: contactless.
Well, nothing is ever truly contactless. However, with people restricting their movements, DocuSign found itself enjoying unprecedented relevance. Unfortunately, that narrative got a bit too ahead of itself. As people have become acclimated to the crisis, DocuSign missed badly on its most recent financial disclosure.
Logically, you should approach DOCU with extreme caution. Nevertheless, DOCU also happens to be one of the under-the-radar blockchain stocks thanks primarily to the company’s research and development with smart contracts. Essentially, DocuSign can add greater security and immutability with its platform, thereby leveraging the blockchain to enhance the credibility of the e-signature industry.
Riot Blockchain (RIOT)
While the other blockchain stocks on this list involved one business among several tied to decentralized protocols, Riot Blockchain is about as direct of an investment into cryptos as you can get — without of course picking and choosing winners and losers among individual coins and tokens.
As a crypto miner, Riot is easily one of the riskiest among the equity categories. While RIOT stock did post a return of 35.5% in 2021, that only tells part of the story. For instance, over the second half of last year, RIOT suffered a loss of more than 38%. That is incredibly steep, reflecting the extreme beta associated with virtual-currency-related enterprises.
While terribly treacherous, the high beta also makes Riot compelling. If you’re the type of person that doesn’t want to expose yourself to the myriad administrative risks that comes with the territory of crypto but desire the upside potential, RIOT could fit the bill.
With the underlying sector in a lull, it might be worth throwing some loose change in the mining firm. However, do so only with money you can afford to lose because this is not an easy story to navigate.
Blockchain Stocks: Aetherium Acquisition Corp (GMFIU)
With my final idea for blockchain stocks to consider, I’m going with a special-purpose acquisition company (SPAC) called Aetherium Acquisition Corp, just to dial up the risk-reward ratio. To be sure, along with the usual dangers of blockchain-related enterprises, SPACs themselves have underperformed benchmark equity indices in 2021.
Among the reasons to avoid these shell companies is that they’re incredibly dilutive. Per Harvard Law School, SPACs take a circuitous road to the public market, during which time they can issue dilutive warrants that don’t provide much substance to the eventual business combination but still end up hurting regular shareholders.
Put another way, do your due diligence, as with any other investment.
But what makes Aetherium intriguing is that the company is seeking a merger with an educational technology (edtech) enterprise, specifically in Asia (excluding China). Further, with the SPAC’s executives commanding blockchain experience, it’s quite possible they’re target organizations with intersectional edtech/decentralization value.
Most encouragingly, Southeast Asia’s edtech market has boomed thanks to the pandemic accelerating demand for online learning. As with any other SPAC, you don’t want to get too heavily involved but it’s worth a look for speculators.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.