Investing in blockchain in Ireland

It’s been said many times that data is the new oil.  Putting your money into big oil delivered massive returns in the 20^th century.  Could investing in big data do the same in the 21^st?

There’s no doubt that there is a huge and growing demand for data management, processing and storage for the world’s financial, healthcare, energy and governments.  That’s why some investors see major potential for returns from the blockchain technology that increasingly powers big data.

This chart shows projected growth in the global blockchain market growing by more than ten times to USD 23.3 billion in the five years to 2023.

Source: Statista.com.

So what are you investing in, and how can Irish investors get involved?

What’s blockchain?

First, some explanation.  Put simply, blockchain is a long list (or chain) of digital information (or blocks).  So far, that might sound like any other data source.

What makes blockchain different is that this list is public, stored on many computers around the world, and that each new block builds on top of all the earlier blocks.  This last part is crucial.  It means that each block is a permanent record, which is very difficult to alter: if any block is altered, all the subsequent blocks must be too.

Here’s an example of a blockchain process (with thanks to First Trust Global Portfolios).

Blockchain isn’t Bitcoin

The most prominent use of blockchain technology so far has been cryptocurrencies such as Bitcoin and Ethereum.  But although cryptocurrencies are generally based on blockchain, they are not the same.

While investing directly in cryprocurrencies has been a wild ride, we’ll see that the companies making wider use of blockchain are more stable performers.

That’s because blockchain has application anywhere a transaction is being recorded, from your bank account, to internet-of-things devices, to services provided by a government to its citizens.

Which businesses are positioned to win from blockchain adoption?

In fact, many companies poised to capitalise on the move to blockchain are already household names – from tech providers like Amazon and Microsoft, to payments businesses like Paypal and Square, industrial and IoT companies like Siemens, and e-commerce platforms such as Chinese giant Alibaba.

Choose a portfolio approach

Ultimately, blockchain is still new, and the biggest winners from wider adoption of the technology are still hard to identify.

That’s why, more than ever, diversification is important.  At Moneycube that means two things.

Firstly, blockchain investments should only form a portion of your portfolio – with the remainder holding a wide range of more conventional assets.  Moneycube can help construct a portfolio with a mix that’s right for you.

Secondly, there’s a major advantage to using a fund to invest, as you’ll be getting exposure to many different companies which are focused on blockchain development.

Here’s one to consider

The First Trust Indxx Innovative Transaction & Process Fund is a good example.  Launched more than two years ago, it’s “designed to track a global universe of companies that are either actively using, investing in, developing, and/or have products poised to benefit from blockchain technology”.

This fund is up 11.6% on a year ago.  Many of its technology holdings are less affected by lockdown than more traditional businesses.

At least half the fund is devoted to investing in companies actively developing blockchain technology and service providers for blockchain. The other half is focused on businesses applying that technology.

Key holdings include chip-makers Intel and AMD, business software leaders Microsoft, SAP and Oracle, and financial companies like London Stock Exchange and Nasdaq.

The companies in the fund have a minimum size of US$250 million – so this is not about backing startups.  And as the fund managers point out, their valuation, at least for now, can be driven by their other operations rather than their comparatively small blockchain businesses.

But if you believe in the future growth in blockchain, and want a piece of it, this fund could be the answer.