The Smartest Way To Profit From The Crypto-Boom

You don't have to be a cryptocurrency expert to profit from the boom in Bitcoin, Ethereum, Litecoin and others. You don't even have to believe in the long-term sustainability of any of these coins. You just have to recognize the game and figure out a way to profit from the underlying technology. That underlying technology, which powers every cryptocurrency on Earth, is the blockchain.

If you've been paying attention to the headlines, you'll see that central banks and major retail banks alike have changed their tune about cryptocurrencies. Initially, they scoffed and called them irrelevant. But recently, the discussion has shifted and now they are acknowledging the threat cryptocurrencies cause to their businesses. What they're really saying is that blockchain is revolutionizing the way we account for data.

What is the Blockchain?

In the digital world, a block is a digital list of records, acting as a ledger that can contain information of any kind. When these blocks are linked together, they are secured by cryptography to form the blockchain. This blockchain is an unforgeable record of all the transactions that is replicated on every computer on the network. If information in a new block can't be verified by all the other blocks in the chain, it is discarded. In the case of the top cryptocurrencies, a currency's network consists of millions and millions of computers all over the world. This makes it unhackable, as a hacker would need to hack all that computing power simultaneously, a seemingly impossible task.

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You Can Still Get in Early on Blockchain

Zacks is launching a portfolio to pursue massive gains without the breakneck volatility of Bitcoin and other cryptocurrencies. We target companies that drive the underlying blockchain technology, real businesses with tangible assets, actual earnings, and exceptional growth potential.

Now is the time to stake your claim for a once-in-a-generation investment opportunity. The "Internet of Money" is changing the way the world does business. It's projected to skyrocket from $706 million to $60 billion by 2024.

Only a limited number of Zacks members can take part in our new approach to this phenomenon. The door closes at midnight Sunday, March 4.

Get ready to see the first stocks >>

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I already know I've lost some people, but please stay with me. At this point the question within this topic is typically: What does blockchain have to do with currency? Everything. But to understand we have to separate our thought of cryptos from traditional fiat currency. While fiat currency is used to buy cryptocurrency, once bought, cryptos stand on their own. In addition, the smart contract (more on this later) aspect allows cryptos to be much more than an exchange of cash, they are an exchange of value. In a sense, these currencies are the "Internet of Value".

To simplify, the blockchain is a public registry of assets and transactions that tells us who owns what. These transactions are often referred to as smart contracts, as they are recording a contract between two people, whether it be a transfer of currency, or a good or service.

You can see how this new innovation could be disruptive to traditional businesses out there. Rather than lament this potential disruption, you are in the unique position to profit from it. How you ask? By investing in the various areas of the market where the blockchain is making noise. There are several different angles here.

The "Picks and Axes": During the gold rush, the ones who really got rich were the ones selling the picks and axes. That is, the companies which provided the tools for the speculators to go out and try to find their fortunes. In the cryptocurrency world, this refers to the companies which make the chips and hardware used for mining operations.

Consulting: There will be a wave of companies looking for ways to incorporate blockchain technology into their existing businesses. Already, large consulting companies are beginning to offer services helping companies to integrate the new tech.

Cloud Infrastructure: No other industry has been as dependent on the cloud for its development as blockchain has. The need to distribute a ledger across the world, with no centralized ownership or authority overseeing transactions plays into the strengths of the cloud. Companies which offer cloud-based hosting may suffer, while those which help facilitate this decentralized network will benefit greatly.

Payment Processing: Among the most disruptive industries for blockchain is payment processing. Rather than your traditional financial intermediary, blockchain technology allows for a distributed, open, public ledger where transactions are confirmed by other nodes in the chain for a fee that's much smaller than your typical fees coming from more traditional processors.

Lending: We are just at the tip of the iceberg here on lending. Blockchain tech is perfect for lending, allowing lenders to spread their risk across thousands of loans in an instant, no matter the size of the lender.

Trading Floors: The legitimization of bitcoin continues as futures contracts have started trading on two large exchanges in the US.

Miners: The miners are the most important part of any blockchain and likely the most misunderstood. Miners confirm transactions from node to node by solving the cryptographic problem and are then rewarded in units of the cryptocurrency. Already we are seeing companies which "mine" cryptocurrency publicly traded. These companies mine the currency then immediately sell them on the open market and pass through the gains to shareholders. Think of them as you would a pipeline company in the energy sector. These companies are small now but could become much larger in time.

Investors/BDC: Some publicly traded companies are acting as incubators for other budding cryptocurrencies. We talk bitcoin a lot but there are over 1,300 other cryptocurrencies in the world. These investors and business development companies invest in promising crypto companies before they hit the mainstream.

ETFs: Already there are ETFs which buy stocks with blockchain exposure, however, soon there will be officially regulated ETFs for bitcoin and Ethereum. These ETFs will move dollar for dollar with an index, not trade at huge premiums to the underlying cryptocurrency like the ones available on the market today.

There are many more companies on the way but how will you know how to separate the pretenders from the contenders? Which of these emerging companies will be built on solid technology and which will be gimmicks? Just like the Dot Com Bubble brought with it several names which added ".com" to their names to get in on the action, companies are adding "Blockchain" to their names, some in a very unscrupulous fashion.

Bottom Line

There are several ways to play the cryptocurrency boom without exposing yourself to the same downside volatility. By spreading your investment across several aspects of the blockchain, diversification can help smooth your returns. Add in the proven strength of the Zacks Rank and our proprietary system of investing in companies with increasing earnings estimates and you have a potent one-two punch.

Start Here and Now

At Zacks, we've been watching the blockchain phenomenon very closely. This space has been estimated at $706 million in 2017, but could very well skyrocket to $60 billion by 2024.

Some investors have already made a lot of money, but in my view the best is yet to come.

To respond to this opportunity, I will be directing a new portfolio, Zacks Blockchain Innovators.

Its first 4 stocks will be posted Monday morning, and only a limited number of investors will share them. Two of these companies have truly explosive growth potential and the other two offer the prospect of steady growth regardless of market conditions.

Together they offer the diversity we're looking for, riding the blockchain boom from different angles - supplying chips and hardware, consulting services, a trading floor, and business development funding.

Entry to this service will be closed midnight Sunday, March 4, so I suggest that you look into it right away.

Be first to our Blockchain Innovators stocks >>

Wishing you great financial success,

Dave Bartosiak

Dave is Zacks' resident technical and momentum expert. A successful early crypto investor, he selects stocks and delivers exclusive commentary for Zacks' brand-new portfolio, Blockchain Innovators.