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How to Play Blockchain Without Getting Burned

The word “blockchain” is one of the most misunderstood terms in the market today. There is certainly a connection between it and bitcoin, but the two words are far from synonymous. Bitcoin is a cryptocurrency that is based on blockchain technology, while blockchain is a ledger of records and transactions called blocks that are linked and secure.

How to Play Blockchain without Getting Burned

Source: Shutterstock

Blockchain technology has the potential to change the world similar to the way the internet did back in the 1990s. It can be implemented in nearly every industry — ranging from real estate to the financials — and it can even be used to track coffee from a farm in South America to the local coffee shop down the street.

This technology will make everyday transactions faster, cheap and more efficient — it’s a win-win for everyone involved.

Finding the Right Investments

There are several ways to play the future of blockchain, which in my opinion will not only revolutionize and disrupt a large number of industries but also lead to trillions of dollars in innovation in the decades ahead. The first is to invest in the specific cryptocurrencies, like bitcoin, that will likely emerge as the leaders in the sector once all the dust settles. However, this strategy tends to be viewed as extremely high on the risk scale, so it’s not so easy for most investors.

That’s perfectly fine — cryptocurrencies are certainly not for everyone. Another way to play trend is to look at the publicly traded companies that are leading the blockchain revolution. However, because there are very few reputable pure play blockchain stocks in the market today, you have to make sure you’re doing all your research.

Let me explain: IBM (NYSE:IBM) is one of the blockchain leaders, but the issue here is that the rest of the company’s business makes up the majority of revenue. The blockchain portion remains very small, so you wouldn’t be gaining much exposure here.

Your best option is to look at the financial industry, as it is already implementing blockchain technology into its current functions. Broadridge Financial Solutions, Inc. (NYSE:BR) is the leader in investor communications for most large publicly traded companies and it has already begun testing the use of blockchain in its proxy voting and facilitating transactions for large banks.

So far, the results have been great, and the stock hit a new all-time high earlier this month.

Another company at the forefront of blockchain and technology in general is Nasdaq Inc (NASDAQ:NDAQ), and it has also recently hit a new high as a result of its positioning in the space. The company’s openness to incorporating blockchain — in the last earnings conference call it was mentioned that NDAQ is open to creating a crypto exchange — separates it from its peers, and I suspect it will keep driving the stock higher over time.

The blockchain revolution is still in its infancy and therefore requires patience from long-term investors. There is no need to risk it all on a penny stock that recently added the word “blockchain” to its name. Instead, look for solid companies that are pivoting to the technology and have the potential to become leaders in the space.

It may take a few years, but your patience will be rewarded in the end.

Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.

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