Many people are wondering how we got here, but here we are. The blockchain has become a part of our lives the same way that the internet is our gateway to a world beyond our physical surroundings. From finance, supply chain, food management, and even to mining, everyone is talking about and the possibility of implementing the decade-old technology. Some of the conversations during lunch breaks are centered on how to invest in blockchain technology and the startups in the nascent space.
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How to invest in the blockchain
The blockchain is an exciting technology, to say the least, but the hype surrounding it surpasses what it can potentially do. There are essentially a number of ways to invest in blockchain – buying cryptocurrencies or investing in companies pursuing the technology and researching about its implementation.
Investing in cryptocurrencies simply means acquiring digital assets and making a profit from price appreciation (going long) or depreciation (going short).
The Bitcoin mania of 2017 is long gone and may never be repeated because according to Mike Novogratz, a Goldman Sachs alumnus, and Bitcoin bull, “prices got ahead of reality.” This was a bubble in the making and it has already burst.
The lesson here is that never invest in a bubble. It’s a disaster in the making.
The next option is to invest in companies leveraging blockchain technology but whose success is not completely tied to the technology. The stocks of these companies won’t go up and down in the same way as digital assets but they may prove to be good investments in the long term.
You can also invest in blockchain startups. Startups have performed very well over the last couple of years. Investing in startups is not reserved for accredited investors but companies can now raise money through online crowdfunding platforms.
According to Crowdfund Capital Advisors, more than 1,000 companies have raised more than $137 million through crowdfunding processes.
You can invest in the equity of the blockchain firms and stay clear off the cryptocurrency course. However, you have to do this carefully.
Investors can invest in crypto exchange-traded funds (ETFs) – new investment vehicles that allow you to invest in crypto without owning digital assets. The U.S. Securities and Exchange Commission (SEC) has previously rejected applications for Bitcoin ETFs but there is hope that they (Bitcoin ETFs) will be approved soon.
The effects of regulation on the crypto landscape
The blockchain space has largely flourished in an unregulated environment but this is also hindering its success. Bitcoin and its cousins are on the brink of revolutionizing the global financial systems but regulators want to step in even though they are unsure about the direction they should take.
According to Brad Smith, the president of Microsoft, regulators will move in if a world-changing technology is created.
“If you create technology that changes the world, the world is going to want to govern you; it’s going to want in some measure to regulate you,” said Smith.
Regulators normally become visible when something goes wrong and there is no doubt that the industry has come under scrutiny as a result of cyber thefts, market manipulation, Ponzi Schemes, and other nefarious acts.
Regulators are flexing their muscles but they may be doing it the wrong because they do not completely understand the industry. Regulators are caught between a hard place because they have to push for investor protection without stifling innovation.
The main benefit of a regulated crypto industry is a certainty. Many investors are cautious about investing in the young industry due to regulatory uncertainty and the changing positions taken by regulators.
Needless to say, regulators are making great efforts in trying to understand the industry before making decisions. The U.S. Commodity Futures Trading Commission (CFTC) released a Request for Information (RIF) in which it asked the public to give its views on Ethereum and its mechanism.
Investing in blockchain: follow the actions of venture capitalists
Venture capitalists (VCs) make their living by investing in promising startups. VCs have a history of being stringent about who they give their money to. Over the last few years, venture capital is slowly flowing into the industry as VCs diversify their portfolios by investing in blockchain and cryptocurrency projects.
Major traditional financial institutions such as Fidelity Investments, Intercontinental Exchange (the parent company of the New York Stock Exchange), etc. are dedicating their resources to the crypto sector.
JP Morgan Chase, one of the largest financial institutions in the United States, launched what appears to be a stable coin although it has been criticized. However, this is a clear indication that many large traditional institutions are seeing the importance of this new asset class.
Last year, the chief investment officer of Yale University’s Endowment Fund made his bet into crypto, possibly sparking a chain reaction that could lead to other university endowments investing in the industry.
This is good news for both retail and institutional investors because these sophisticated investors bring stability to the market and will probably trigger the next bull run. It is also advantageous to follow the startups and cryptocurrencies they invest in.
There is still a long way to go
The industry still has a long way to go as it continues to shape itself through investments made by both retail and institutional investors.
The blockchain industry has been a cash cow especially for those who got in before the bubble and exited at its peak. Those who joined the game a bit later lost a significant portion of their investments as the industry found itself in a prolonged bear.
More research is needed to unlock the full potential of blockchain technology and discover more use cases for the technology. At the same time, hard fork upgrades being implemented by several blockchain protocols can lead to further adoption of their respective digital assets.
Investing in the blockchain is like investing in almost anything – it is a high-risk activity. Investors should do their due diligence before making investments.