ICOs, short for Initial Coin Offerings, have been one of the biggest fintech trends over the past couple of years. At one point, startups had used ICOs to raise close to four times as much money as was raised from venture capital firms, making them the biggest fundraising platform for startups at the time.
But as scams took center stage and a wave of regulation swept the industry, ICOs began losing their shine. Toward the end of 2018, searches for the term “ICO” dropped by 90 percent as investors shied away from ICOs and many products associated with cryptocurrencies.
ICOs are part of a number of trends associated with blockchain, the decentralized ledger that holds a lot of promise for many industries, even outside of fintech. And even though ICOs are no longer a viable investment vehicle for investors, there are still a number of ways that investors with a low risk appetite can dabble in blockchain-related technologies and potentially profit.
Here are a few of these opportunities.
Blockchain ETFs are among the easiest routes into blockchain-related investing. These are exchange-traded funds that track groups of companies that are fully or partially involved with blockchain-related technologies.
The first four blockchain ETFs hit the market early last year within days of each other, with two more launching later in 2018. And over their lifetime, the six blockchain ETFs have taken in close to $300 million collectively, with the largest one, Amplify Transformational Data Sharing ETF (BLOK), taking in about $118 million going into the first half of this year. BLOK has some quite interesting picks in its basket, including the likes of NVidia NVDA, AMD (AMD), Square (SQ), and Overstock (OSTK), which should be encouraging for investors who might be wary of blockchain’s relevance within traditional industries.
Because they don’t directly invest in cryptocurrencies, blockchain ETFs are potentially safer for investors who don’t mind sacrificing the promise of 10,000 percent returns in exchange for long-term ROI and reduced risk.
Mixing it up: Using blockchain with traditional investment strategies
There are also a growing number of blockchain use cases within traditional investment platforms, including stock, commodities, and forex exchange markets that offer retail investors a chance to dabble in blockchain while still maintaining their existing investment portfolios.
Back in 2016, CLS Group, the entity charged with providing FX settlement for Barclays, Citigroup, Goldman Sachs, and other large financial players, began working on a blockchain project that would eventually install a new FX settlement service running on blockchain. By interacting with more than 100 forex brokers running multiple FX platforms with an assortment of trading instruments, this new platform by CLS Group, scheduled for launch this summer, will bring blockchain’s speed and transparency to thousands of FX investment portfolios worldwide – all with the backing of traditional financial players.
There are also dozens of other startups that are trying to create platforms for cryptocurrency trading in order to introduce some stability to the market. Others like Coinut even go further to offer the only bitcoin options exchange, joining the likes of Coinigy and Hedgy who use smart contracts and big data analytics to improve ROI for different types of investment portfolios.
Investing in companies that use blockchain
Another way to dive into blockchain investing is by going with startups that have a product or service based on a blockchain platform. While many investors often relate blockchain directly to bitcoin and other digital coins, they are not the same thing. Think of blockchain as the underlying technology, and digital coins as apps that run on that technology.
But despite the allure that comes with many startups dabbling in blockchain, only a few truly utilize the technology around blockchain. Many often focus on using blockchain to create tokenized platforms, that is, products or services that concentrate more on digital currency than the technology itself. Other startups, and even established companies, will use blockchain as a tactic for self-promotion by adding the word “blockchain” to their brands or products without actually implementing blockchain technology, reminiscent of the way companies used to add “.com” to their names just 20 years ago.
Still, despite the difficulty of finding a legit company that uses blockchain, there are actually a number of promising ventures that are worth exploring. The most interesting blockchain plays right now can be found in finance, pharma, and logistics, with many use cases coming up in other industries.
Do your research before choosing to put your money in one of these startups, making sure you go with a company that actually uses blockchain solutions for existing problems.
I hold no positions in any of the aforementioned companies.
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