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First, a caveat. The cryptocurrency space, to which the blockchain is intimately linked, is enduring significant pain to start 2022.
As of late Sunday, Jan. 23, bitcoin and ethereum – the two largest digital currencies by market capitalization – shed 16.65% and 25.3% of their respective values in just a week. Go down the list of cryptos and there are more severe losses and that includes some that are in the multi-billion market cap category, indicating the current sell-off is leaving few crypto stones unturned.
Not surprisingly, clients are understandably rattled by what's happening in the crypto universe. Digital currencies are sagging, indicating there's more correlation to equities in this asset than some clients expected. Additionally, many previously beloved fintech and crypto-correlated stocks are faltering. Mightily. As just one example, PayPal (NASDAQ:PYPL) resides a staggering 47.27% below its 52-week high.
That's enough for clients to question the crypto and these are times when they need more guidance from advisors to navigate a still emerging and opportunity rich asset class.
Assessing Blockchain Opportunities
Something many clients aren't aware of is that blockchain has applications beyond crypto and not all crypto-correlated companies are all about crypto all the time. Take the case of Coinbase (NASDAQ:COIN).
Unfortunately for now, Coinbase's status as the operator of the largest crypto exchange has its shares faltering – down 24% just this month. One would think recent cryptocurrency volatility would be good for an exchange operator. Alas, that's not the case right now for Coinbase, but there's much more to the long-term story here.
“Coinbase is a full-service crypto platform today with operations spanning retail and institutional trading, lending, custody, wallets, staking, debit cards, blockchain analytics, commerce integration, cloud services, a soon-to-launch non-fungible token (NFT) marketplace, and more,” says Global X analyst Matt Kunke. “While Coinbase’s revenue is still dominated by retail trading today, institutional trading revenue and subscription and services revenue are making up a growing portion of their topline. Subscription and services revenue encompasses a very diversified mix of revenues, and this segment grew by a staggering 1256% quarter-over-quarter as of 9/30/2021.”
E-commerce is another example of territory that's rich with potential blockchain applications, confirming that these two examples of disruptive technologies intersecting with one another with the possibility of compelling long-term implications.
“Beginning in 2014, Overstock implemented a multifaceted approach to increase its exposure to blockchain technology and cryptocurrencies,” adds Kunke. “First, the company partnered with Coinbase to allow their e-commerce customers to pay with bitcoin, and Overstock added the flexibility to hold portions of this bitcoin earned on their balance sheet. Second, Overstock began a more holistic initiative to develop and advance blockchain technology through their subsidiaries which were collectively referred to as the Medici business.”
Expect Evolution
With all the crypto calamity happening today, it's probably best to take a wait-and-see approach to blockchain equities and funds. However, these assets shouldn't be ignored simply because of near-term weakness.
Blockchain companies are evolving at a rapid rate as is the application case for this technology. Ignoring this opportunity set could proof foolhardy over the long haul.
“While many of these companies may not receive the investor attention commanded by cryptocurrencies today, these companies provide a broad, thematic exposure to the picks-and-shovels of the blockchain and digital assets space, and they could offer a complimentary exposure to direct cryptocurrency investing,” concludes Kunke.
Related: "Crypto Dad" Wisdom Can Help Advisor/Client Engagement