A revolutionary new system for securely and efficiently storing, managing and transferring information, blockchain technology has emerged as a disruptive force reshaping industries across the globe.
With the potential to revolutionize how businesses and governments operate and how people interact, it's no surprise that blockchain stocks have caught the eye of investors seeking long-term growth.
Keep reading to learn about blockchain technology, how to invest in blockchain stocks and insights into the future of this dynamic market segment.
Key Takeaway
The most common ways to gain exposure to blockchain technology are by purchasing cryptocurrencies, investing in blockchain-based companies or participating in blockchain-focused exchange-traded funds (ETFs) and venture capital funds.
Understanding Blockchain Technology
Blockchain technology is a decentralized digital ledger system that records transactions across multiple computers transparently, securely and tamper-resistantly. As the name suggests, it consists of a block chain containing a previous block's cryptographic hash, a timestamp and transaction data.
Once a block is added to the chain, it cannot be altered without changing subsequent blocks, making the blockchain highly secure against fraud and unauthorized changes.
While most commonly associated with cryptocurrencies like Bitcoin and Ethereum (where it has enabled faster and more secure peer-to-peer transfers while reducing reliance on intermediaries), industries can use blockchain technology. In supply chain management, it enhances transparency and traceability, mitigating fraud and optimizing inventory management. The healthcare sector benefits from blockchain's secure storage and sharing of patient data, improving interoperability and data accuracy.
Smart contracts help streamline real estate transactions by reducing paperwork. Blockchain can even enhance voting systems by providing a secure and transparent platform that could reduce fraud and increase trust in electoral processes.
Why Invest in Blockchain Technology?
Blockchain has the potential to revolutionize various industries by addressing key challenges in sectors such as finance, supply chain management, healthcare and more.
Blockchain presents a compelling case for investors looking for long-term growth by providing them with exposure to innovative technologies and disruptive trends that have the potential to generate significant returns over time.
Blockchain technology offers secure, transparent and efficient solutions for transactions and data management, thereby unlocking value for businesses. By investing in blockchain technology stocks, you can gain exposure to companies at the forefront of innovation poised to capitalize on the increasing demand for blockchain solutions.
Investing in blockchain also allows you to participate in the ongoing evolution of the digital economy and potentially benefit from its long-term growth trajectory. Blockchain company stock can diversify your portfolio as a relatively new and distinct asset class with a low correlation to traditional financial markets.
Evaluating Blockchain Stocks
Evaluating blockchain stocks requires a comprehensive approach combining qualitative research and fundamental and technical analysis.
Research
First, do your research:
- Understand the core business model and how blockchain technology fits into its strategy.
- Evaluate the leadership team, focusing on their experience in the blockchain space and their track record of success.
- Assess partnerships and collaborations within the blockchain ecosystem.
- Analyze the competitive position within the blockchain industry and its growth potential compared to peers.
Fundamental Analysis
Next, employ fundamental analysis:
- Examine financial statements, including revenue growth, profitability and cash flow.
- Evaluate key financial metrics such as price-to-earnings ratio, price-to-sales ratio, and return on equity.
- Consider growth prospects, market opportunity and potential risks associated with its business model.
- Look for catalysts that could increase the stock price, like new product launches, regulatory approvals or partnerships.
Technical Analysis
Next, use technical analysis:
- Analyze the stock's price trends using moving averages, relative strength index (RSI) and moving average convergence divergence (MACD).
- Identify support and resistance levels to determine potential entry and exit points for trades or investments.
- Monitor trading volume to gauge investor sentiment and the strength of price movements.
- Pay attention to any patterns or trends in the stock's price chart, such as trendlines, triangles or breakouts.
Strategies for Investing in Blockchain Stocks
What is blockchain stock? Blockchain stock typically refers to shares of publicly traded companies that are directly involved in blockchain technology or have significant exposure to it through their business operations.
How investors include these blockchain stocks in their portfolios varies depending on their goals, risk tolerance and time horizon. Let's look at how to buy blockchain stocks.
Long-Term Investment Strategies
Long-term investment strategies for blockchain stocks include the following:
- Buy and hold: Invest in fundamentally strong blockchain companies with a long-term growth outlook and hold onto the stocks for an extended period, allowing time for the investment thesis to play out.
- Dollar-cost averaging (DCA): Invest a fixed amount of money regularly into blockchain stocks over time, regardless of market fluctuations, to reduce the impact of volatility and potentially lower the average cost per share.
- Focus on fundamentals: Prioritize companies with solid financials, strong leadership, innovative technology and a competitive advantage in the blockchain space.
Short-Term Trading Strategies
Short-term trading strategies include the following:
- Trend following: Use technical analysis to identify short-term trends in blockchain stocks and capitalize on momentum by buying on uptrends and selling on downtrends.
- Swing trading: Take advantage of short-term price fluctuations in blockchain stocks by entering and exiting positions based on swing highs and lows within a defined time frame, typically ranging from a few days to a few weeks.
- News trading: React to significant news events or developments in the blockchain industry by quickly buying or selling stocks based on market sentiment and anticipated price movements.
Portfolio Management Strategies
Portfolio management strategies include:
- Sector diversification: Allocate investments across various sectors within the blockchain industry to spread risk.
- Asset allocation: Consider allocating a portion of the investment portfolio to blockchain stocks based on risk tolerance, investment objectives and overall portfolio diversification strategy.
- Risk management: Implement risk management techniques such as setting stop-loss orders, diversifying across different asset classes and maintaining a balanced portfolio to mitigate the impact of adverse market conditions.
How to invest in blockchain stock
Wondering how to buy blockchain stock? Here are some steps to help you choose the right blockchain company stock for your needs.
Step 1: Research and evaluate blockchain companies.
Choose companies that align with your investment goals and risk tolerance, and consider factors such as revenue growth, profitability, market share and management team expertise.
Following our tips above regarding company research and analysis will also help you answer:
- What services do they offer, and what value do they provide their customers?
- How much funding have they raised, and how much occurred through equity vs. debt?
- Are they profitable?
- What are the projections for the future?
- How quickly does their customer base grow?
- What do other people say about them?
- Have they won any awards or recognition?
Step 2: Choose a broker.
Open a brokerage account with a reputable online broker that offers access to a wide range of stocks, including blockchain-related companies. Compare brokerage platforms based on:
- Trading fees: Many platforms charge a commission on trades and can have additional fees for certain services. These fees can quickly add up, so find a broker that fits within your budget.
- Services offered: Decide if you need access to automated trading, options trading or margin trading and ensure the platform will support the type of trading you want.
- Research tools: Make sure the brokerage services will provide the type of analysis you need to make informed investment decisions and monitor the performance of your blockchain stocks.
- User interface and customer support: Some platforms are more user-friendly than others, so find one that is easy to navigate. Look at the features and tools offered and decide if they are intuitive and easy to use.
Step 3: Fund your account.
Deposit funds into your brokerage account to start investing. Depending on the broker's requirements, you can transfer money from your bank account to your brokerage account electronically or via wire transfer.
Step 4: Buy blockchain stocks.
You can buy the stock through a traditional stockbroker or directly from the company. Purchasing the stock directly from the company may be the more cost-effective option if you buy many shares.
Besides the option to invest directly in a company's stock utilizing blockchain, you can also purchase cryptocurrencies, buy shares of a cryptocurrency trust, buy a blockchain ETF or participate in crowdfunding a new cryptocurrency through initial coin offerings (ICO).
Step 5: Monitor and reevaluate your investments.
Keep track of your investments and consider rebalancing your portfolio or adjusting your holdings based on changes in market conditions, company fundamentals or your investment goals. Utilize tools from your broker or stock tracking software to set up alerts when a stock price reaches a certain threshold and analyze price patterns and trends. Stay informed about developments in the blockchain industry, regulatory changes and market trends. Follow financial news outlets, industry analysts and company announcements that could affect the stock's price.
Tips for Investing in Blockchain Stock
Investing in blockchain stocks can be rewarding but comes with its own risks. So, how do you invest in blockchain? Here are some tips to help you find the best blockchain stock for your portfolio:
- Research extensively: Before investing in any blockchain stock, thoroughly research the company — how it utilizes blockchain, its competitive advantages and growth prospects.
- Understand the technology: A deep understanding of blockchain technology and its potential applications across various industries will help you identify companies with innovative and promising blockchain solutions.
- Be patient: Blockchain technology is still in its early stages, and the industry is evolving rapidly. Be patient and take a long-term perspective, knowing that it may take time for the technology to reach its full potential and for companies to realize significant growth.
- Manage risk: Allocate only a portion of your investment capital to blockchain stocks, maintain a diversified portfolio to mitigate risk, and pay attention to factors such as volatility, regulatory uncertainty and technological challenges.
- Consider growth vs. value: Consider why you invest in a particular blockchain stock. Growth stocks may offer higher potential returns but have higher volatility, while value stocks may be more stable but offer lower growth potential.
- Use limit orders: When placing trades, consider using limit orders instead of market orders to buy or sell blockchain stocks. Limit orders allow you to specify the price you're willing to buy or sell, helping you avoid unexpected price movements and potentially get a better deal.
- Use dollar-cost averaging (DCA): If you're unsure about market timing, consider using a DCA approach to gradually invest in blockchain stocks over time as it can help reduce the impact of market volatility on your investment.
Pros and Cons of Investing in Blockchain Stock
As with all investments, there are benefits and downsides to investing in blockchain stocks.
Pros
First, let's take a look at the benefits of investing in blockchain technology:
- Diversification: Investing in blockchain stocks can provide a more diverse portfolio, not limited to a particular sector or industry.
- Potential for high returns: Blockchain stocks can generate substantial returns, especially in the long term.
- Innovation: Investing in blockchain stocks means investors can gain exposure to the latest and greatest in the tech sector.
- Accessibility: Blockchain stocks are available to investors of all levels, including those accessible on major online trading platforms.
Cons
Now, the downsides to investing in blockchain stocks:
- Volatility: Blockchain stocks are highly volatile and can be risky investments.
- Limited investment opportunities: There are currently limited options for investing in blockchain stocks.
- Lack of research: You may find blockchain stock research limited and challenging to locate.
- Lack of expertise: Investing in blockchain stocks requires a certain level of knowledge and experience.
Future Trends and Opportunities in Blockchain Investing
The future of blockchain investing contains exciting trends and opportunities as the technology evolves and matures. Here are some key areas to consider:
- Interoperability and scalability: As blockchain networks grow in size and complexity, there's a growing need for interoperability between blockchains to facilitate seamless communication and data transfer. Projects focused on interoperability solutions, such as cross-chain bridges and interoperability protocols, will likely see increased demand and investment.
- Decentralized finance (DeFi): DeFi has emerged as one of the most significant growth areas within the blockchain space, offering decentralized alternatives to traditional financial services such as lending, borrowing, trading and asset management. Investing in DeFi projects and platforms could present lucrative opportunities as the sector expands and innovates.
- Non-fungible tokens (NFTs): The rise of NFTs has brought blockchain technology into the spotlight, enabling digital ownership and provenance verification for various digital assets such as artwork, collectibles, and virtual real estate. Investing in NFT marketplaces, platforms and projects that support NFTs' creation, trading and monetization could be a promising growth area.
- Blockchain in supply chain management: Blockchain technology offers significant potential to improve transparency, traceability and efficiency in supply chains by enabling secure and immutable tracking of goods and transactions. Investing in blockchain solutions tailored for supply chain management could capitalize on the growing demand for visibility and integrity.
- Blockchain in healthcare: The healthcare industry is increasingly exploring blockchain technology to enhance data security, interoperability and patient privacy. Investments in blockchain-based healthcare solutions, such as electronic health records (EHRs), medical data management platforms and health information exchanges (HIEs), could address critical challenges and drive innovation in healthcare delivery.
- Regulatory compliance and governance: As blockchain adoption grows, regulatory compliance and governance frameworks are becoming increasingly important. Investing in projects and platforms prioritizing regulatory compliance, privacy and security could mitigate regulatory risks and attract institutional investors to the blockchain space.
Ready to Board the Blockchain Train?
Investing in blockchain can be exciting and rewarding, but remember to research, diversify your portfolio and keep a long-term perspective.
By following our tips and staying informed about the latest developments in the industry, you're well on your way to capitalizing on the promising opportunities in blockchain investing.
FAQs
Check out some frequently asked questions about blockchain below.
What is the best stock for blockchain?
There isn't a single "best" stock for blockchain, as it depends on your investment goals, risk tolerance and market conditions. However, companies like IBM, NVIDIA and Square have exposure to blockchain technologies.
How much should I invest in blockchain?
The amount you invest in blockchain depends on your financial situation, risk tolerance and investment objectives. Consider diversifying your investment portfolio and only investing what you can afford to lose.
What is the minimum investment in blockchain?
The minimum investment in blockchain varies depending on your chosen platform or investment vehicle. Some blockchain-based assets allow for investments of just a few dollars, while others may require larger sums. It's important to research and consider your options carefully.
Before you consider Riot Platforms, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Riot Platforms wasn't on the list.
While Riot Platforms currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
