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David Kempton: four blockchain stocks I'm buying

Most investors will be wary of extremely volatile bitcoin trading. But blockchain technology has produced some investable companies.

 
David Kempton: four blockchain stocks I'm buying
 

Bitcoin futures have begun trading today and predictably, as with everything connected to the crypto-currency, they have surged.

Bitcoin futures are changing hands for $17,690 on the Chicago Board Options Exchange, up 18% on their $15,000 open price, mirroring the extraordinary surge of the digital currency to which they give access.

That’s outpacing the price of even bitcoin itself, which is currently trading at $16,473, up by more than 2,000% this year and having doubled in price in less than three weeks.

So far I have not invested directly in any crypto-currency. The extreme volatility is too much for me. Apparently the phenomenon is the biggest move in any asset class for 395 years, only trailing Dutch tulips in 1634-7. Even the dotcom boom of the 1990s was just a blip in comparison.   

Values must stabilize soon if crypto-currencies are to be taken seriously. But I am certain that the blockchain system which powers bitcoin will become part of daily life. 

Understandably there are still many doubters, but the world needs a centralised currency and not one supported by debt and the goodwill of lenders. Bitcoin and the other thousand or so digital currencies are unlikely to fulfil this role in their current guise without more control and governance, but they probably start the process.  

I’ve just spent a day in Singapore with two kings of crypto-currencies and I now have a much better understanding of the whole system, which I shall attempt to explain.

How it works

Imagine a ledger into which transactions are constantly entered – this is the blockchain base into which entries of bitcoin, or other crypto-currencies, are being made every second. The holder of bitcoins uses them to buy a product by transferring them through the ‘ledger’ to the vendor, whose current holding is automatically credited.

Known as distributed ledger technology, automatically updated every second, blockchain is the digital ledger, acting like a spreadsheet, constantly duplicated across a massive network of computers, with all transactions made in crypto-currencies, recording chronologically and publicly.

That’s it, simple book keeping – but the ledger is an ephemeral piece of software, constantly maintained and updated, the cost of which is extracted in tiny amounts from every transaction – usually fractions of a cent. 

Game-changing technology

Currency transfer is only one of many functions that the blockchain system enables and will probably change forever how many industries operate. There will be no need for depositing banks, their only role will be to operate loan books. Similarly share trading will simply go through the ‘ledger’, with no need for a broker or share certificates. 

Bitcoin is only a basic trading currency, whereas ethereum, the next biggest crypto-currency, is much more than that. By making fuller use of the blockchain system, it is able to offer more facilities beyond financial accounting; it really is game changing technology which could dramatically improve everything from healthcare records, component traceability, online voting and insurance. Even the small independent Adelphi premium scotch whisky bottler has adopted blockchain ‘to enrich the consumer experience and battle counterfeit whisky’. They use QR codes on each bottle enabling traceability right through to the barley field.

This is a simplification of a complex system, but space precludes a fuller story.  Suffice it to say that it will impact your life soon, but if you don’t understand it, don’t worry.  You probably don’t understand the internet either, yet you use it every day. Blockchain will be the same.

Watershed moment

The launch of bitcoin futures could be a watershed moment and bring some stability since futures can trade long or short and the two-way trade frequently stabilizes a commodity price.

The Australian Stock Exchange is testing whether blockchain could be used to replace its existing clearing and settlement systems. Nasdaq is investigating the possibility of creating distributed ledgers for private company share registers.

PricewaterhouseCoopers has started accepting bitcoin payments in Hong Kong, as have thousands of other businesses. Central banks, including the Bank of England, are meanwhile exploring the merits of a digital central bank currency.

Of course, the technology is still in its infancy and we are unlikely to see anything like a central bank digital currency in wide use for some years, but blockchain has now emerged from the shadow of bitcoin and offers a wide range of exciting possibilities ahead.

However, universal adoption is likely to be a lengthy process, slowed by regulatory investigations and increasing legislation given the enormity of the change. But as personal use increases and consumers become more familiar with the process, trust will increase, adoption will rise, and more companies will incorporate it into their business models.

Blockchain stocks I'm buying

While I have not invested in crypto-currencies, I have dipped my toe into the water with some companies involved in the world of blockchain.

These stocks are not digital currency, where the volatility devalues a potentially serious sector; they are real companies. If the cryptocurrencies do collapse, sentiment will obviously affect them, but value will ultimately come through.

Hive Blockchain Technologies (HIVE.V)

The first publicly quoted blockchain infrastructure company with a successful crypto-currency mining facility in Iceland. Exclusive partnership with bitcoin mining technology company Genesis gives them very effective hardware.  Cash flow positive with a healthy balance sheet, they look worth a punt, but spread your risk in this fast developing sector.

BTL Group (BTL.V)

A blockchain business with a patented development platform, Interbit.  Probably the current leader in the sector where clients include Visa, BP, ENI and other global organisations in the financial services, energy, registry and gaming  sectors. The initial IPO was in 2015, but a money raising in first week of November was increased to $10 million (£7.5 million) to meet demand for the stock. 

Kryptonite 1 (KR1.ISD)

A blockchain investment company focused on early stage projects and blockchain-based digital assets, quoted on NEX exchange, the UK junior market. 

Big Wind Capital (BWC.CD)

A military-grade cybersecurity company operating in the blockchain / bitcoin sector, focused on finding and eliminating cyber threats. Recent news of patent filings to use biometric security to protect and recover bitcoins and other crypto-currencies is potentially huge.

Missing passwords and theft have become one of the biggest issues plaguing the cryptocurrency industry, with more than 35 major reported hacks of bitcoin exchanges since 2011, leading to the theft of over 980,000 bitcoins.

It will be fun to see where these prices go and my small stakes give me a toe in the water. If my confidence builds, I will buy more, and have now just added to my BTL holding.

David Kempton is non-executive chairman of Hawksmoor Investment Management and a non-executive director of Impax Funds Ireland. He is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.

 

14 comments so far. Why not have your say?

Gleaner

Dec 11, 2017 at 17:03

Whilst I know people have made and are continuing to make lots of money from cryptocurrency. And I know I may well attract a lot of negative comment.

But I cannot lose the gut feeling that it is all nothing more than a giant ponzi scheme

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Ian via mobile

Dec 11, 2017 at 17:06

I am a holder of BWC and always understood it to be mainly a gold mining company.

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bar chid

Dec 11, 2017 at 17:11

I have to agree with you, reminds me of "it's different this time", but it never is !

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JohnR

Dec 11, 2017 at 17:18

For goodness sake David.. The world does not need a centralised currency.

The entire purpose of bitcoin's blockchain and the distributed proof of work network concept is to entirely get away from the centralised, privileged, corrupt, failing system we have now.

That's why BTC and copy cats are by design DE-CENTRALISED, that they're not controlled and manipulated by a privileged inner circle of omnipotent money printers empowered to commit fraud on the people by subordinate governments.

Talk about missing the point..

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Harry via mobile

Dec 11, 2017 at 18:46

You missed the point guys, and didn't read the article. While crypto currencies are highly speculative and lack intrinsic value, the block chain technology is much more and has a wide range of applications in a number of established contexts. With this in mind I invested in Coinsilium earlier this year and have seen a ninefold increase in my investment.

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ian dilworth

Dec 11, 2017 at 19:21

BWC is not a Blockchain stock. It mines mainly gold.

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kempton

Dec 11, 2017 at 21:44

Ian, re Big Wind - BWC. see this link

https://cybr.htsicloud.com/2017/12/07/hill-top-security-partners-with-guardsight-enhances-military-grade-cyber-security-offering-2/

hope it can be opened from this format.

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kempton

Dec 12, 2017 at 08:31

BWC Big Wind Capital is very much a cyber security company with big aspirations in the protection of crypto-currencies.

See this link

https://cybr.htsicloud.com/2017/12/07/hill-top-security-partners-with-guardsight-enhances-military-grade-cyber-security-offering-2/

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kempton

Dec 12, 2017 at 09:12

if link doesn't work, see Big Wind Capital on Bloomberg. the Company summary there describes the BWC cyber aspirations very well.

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A_J_H

Dec 13, 2017 at 12:51

Actually, BWC does seem to have a stake in blockchain. Hill Top Security Inc are a private cyber security company with a blockchain patent submission and BWC have a letter of intent to merge with them.

https://cybr.htsicloud.com/investorspage/

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chris dennistoun

Dec 13, 2017 at 17:46

Why anyone would buy BWC at present is a complete mystery.There are thousand of warrasnts out there, which can be cashed in.Whenever the stock rises, any warrant holder sells the ordinary and holds the warrant.It's a free ride.

Check their last announcement for details.It strikes me BWC won't be moving far

for a very long time, with so much overhead volume. wating for an exit.

Kryptonite 1 is another story, the best route to Blockchain profits.

Google 'Wexboy' and look at his blogs for more details.

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Andrew Stevenson

Dec 14, 2017 at 18:19

What nobody has mentioned is the consumption of electricity. Apparently running Bitcoin computers needs as much as the present amount used by Denmark. If it carries on till all the Bitcoin as been 'mined' it will need as much as the consumption of the USA. So how are these other block chain systems going to be powered ?

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Dennis .

Dec 16, 2017 at 09:38

Sorry but as a Physicist that's rubbish. That comment has Daily Mail written all over it.

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Himanshu Chopra

Jan 08, 2018 at 11:31

hello, can you please recommend a broker in the UK who is offering access to BTL Group Ltd. Would appreciate it. Thanks

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