3 Ways to Play This $15.5 Billion Blockchain Subsector

While the price of major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) remain choppy this year, businesses and investors across the globe have been busy exploring ways they can best use blockchain technology.

They're trying to harness the tech to improve or streamline operations in a wide range of industries – from financial services, media, and telecom to transportation, healthcare, and consumer or industrial products.

The idea here is that the blockchain can provide a digital store of value, eliminate the middleman currently required in many digital transactions, quicken settlement between parties, and authenticate transactions in an immutable way.

And that's just the beginning.

So this is going to be a big industry, with a big market.

WinterGreen Research estimates the worldwide market for blockchain products was $706 million last year and could reach more than $60 billion by 2024. That's 8,400% growth in less than a decade – and that'll lead to the kinds of gains no one can ignore.

But today, I want to focus on a smaller sector within the blockchain world. It's got explosive profit potential all on its own.

Then I'm going to show you three ways to make money on this blockchain revolution.

Check it out...

Introducing Blockchain as a Service

Technology hardly ever works in isolation. It often takes a variety of technologies working in tandem to achieve next-level services that become the basis for whole new industries.

That's the "Convergence Economy" in a nutshell.

And that is just what's at play with the field of blockchain as a service (BaaS), which seeks to help businesses build out their enterprise blockchain solutions and incorporate the cloud services they rely on.

IBM Corp. (NYSE: IBM), HP Inc. (NYSE: HPQ), Microsoft Corp. (Nasdaq: MSFT), Oracle Corp. (NYSE: ORCL) – the list goes on – all already have such products for their clients.

It's not much of a surprise when you consider the potential market here – MarketsandMarkets sees BaaS growing from a $623 million industry today to a $15.5 billion one by 2023.

You can now add to that list the Chinese telecom giant Huawei Technology Co. Ltd., which recently announced its blockchain strategy at a Hyperledger Meetup in Beijing.

Huawei's BaaS offering, known as BCS, will become the core structure on which the firm can incorporate its cloud solutions. The idea is to integrate with other cloud services, as well as enterprise blockchains, through existing IT infrastructure.

Companies setting up their enterprise-level blockchains typically focus on nine key application scenarios when choosing BaaS – data assets, Internet of Everything (IoE), operations, identity verification, data certification, data transactions, new energy, philanthropic donations, and inclusive finance, according to Zhang Ziyi, a blockchain architect with Huawei's cloud unit.

It's an exciting new industry we'll be keeping an eye on.

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And as we do, I want to call your attention to a few ways you can play this new trend – and the broader blockchain space.

Blockchain as a Service Play No. 1: Microsoft

Microsoft Corp. (Nasdaq: MSFT) was the first firm to bring blockchain to the cloud, and it's made blockchain technology a key part of its Azure cloud computing platform. The system even comes with easy-to-deploy templates that allow users to plug into the most popular crypto ledgers.

Microsoft also says Azure's built-in blockchain is designed to help developers write enterprise-wide applications that can integrate into existing cloud services.

Designed to provide maximum flexibility, the Azure blockchain platform provides a highly secure ledger of all transactions for a literal permanent record. This "immutable" record means mistakes cannot be corrected with updates or through data deletions – they must be fixed later through a compensating transaction that also remains in the ledger.

Recently, Microsoft has begun connecting its blockchain services to other popular infrastructures and platforms, from its own Office 365 Outlook to those from Salesforce.com Inc. (NYSE: CRM) to SAP SE (NYSE: SAP) and Twitter Inc. (Nasdaq: TWTR).

The idea for Microsoft here is to help its customers by allowing them to port their data from these services onto the cloud and then a blockchain. In this way, data from multiple companies can be collected in a standardized format at scale, allowing for a nearly limitless ability to mine such data for all kinds of insights.

"What blockchain is doing is creating a multi-party business process that is moving out of email, phone calls, spreadsheets and into a single system with a single view on the data that all of the participants can rely upon and trust," Azure General Manager Matt Kerner told CoinDesk. "Even the fiercest of competitors can onboard and mutually derive benefit from that system and find new revenue streams."

To date, Microsoft hasn't said just how much it's earning from the blockchain portion of Azure. But that cloud product is a big winner.

In its most recent fiscal quarter, Microsoft said Azure revenue grew 76%. While below the growth rate Azure has scored in recent quarters, it's still impressive – and makes Azure the fastest-growing part of the Microsoft empire.

Now, Microsoft still hasn't disclosed how much revenue Azure brings in, but Evercore analysts estimate it saw more than $7.74 billion in sales in fiscal 2018, or about 7% of Microsoft's total annual revenue.

That's bound to rise as more firms seek out Azure.

Blockchain as a Service Play No. 2: IPOs to Watch

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Back in early October, I told you about the excitement surrounding the upcoming multibillion-dollar initial public offering (IPO) of Bitmain Technologies Ltd. It's slated to take place by the first quarter of 2019 on the Hong Kong Stock Exchange.

Bitmain is the dominant player in the mining rig market. As a mining pool operator, it has a combined global market share of 48%. And its new, 7-nanometer ASIC crypto mining chip could prove to be a success for the firm.

But as I stated then, there are still several lingering issues that prevent me from recommending Bitmain when it IPOs – it's just too risky right now.

However, the industry's also been buzzing about another key crypto-world business that recently closed a $300 million round of funding – and may be making its own moves toward an IPO. I'm talking about San Francisco–based Coinbase, one of the most popular crypto exchanges on the market.

Its earlier fundraising effort put the privately held firm's valuation at over $8 billion. This year, Coinbase is projecting it'll bring in $1.3 billion in revenue – mostly from commissions on trades on its platform and its own crypto trading. Profits, meanwhile, are expected to climb to $456 million this year from $380 million in 2017.

The firm recently introduced USD Coin, a so-called stable coin pegged to the U.S. dollar. With more than $127.4 million in issuance thus far, USD Coin already is the most popular of the more than 50 stable coins on offer.

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Coinbase is also looking to expand its overseas operations to offer fiat-to-crypto exchange services, as well as broaden its support of "thousands" of more tokens on its exchanges.

Now, no one at the firm has confirmed anything yet, but Coinbase CEO Brian Armstrong told attendees at a venture capital conference in September that he'd like to one day run a public company.

So you know I'll keep watching Coinbase closely for you.

In the meantime...

Blockchain as a Service Play No. 3: Two ETFs

Unless you buy Bitcoin or another cryptocurrency, blockchain technology has thus far been a tough area for everyday investors to get into. There just aren't that many options on the market.

And that's a shame when you consider that the worldwide market for blockchain products was $706 million last year and could reach more than $60 billion by 2024.

The industry is waiting for the U.S. Securities and Exchange Commission to give its stamp of approval to a cryptocurrency exchange-traded fund (ETF). That hasn't happened yet, though the situation could change by the end of the year.

Meantime, there are several blockchain-focused ETFs on the market that give you exposure the crypto industry, including the Amplify Transformational Data Sharing ETF (NYSE: BLOK).

BLOK has several attractive picks, including fintech leader Square Inc. (NYSE: SQ) and Japanese blockchain backer SBI Holdings Inc. (OTC: SBHGF).

And it meets two of the three ETF Profit Screens I use when considering such investments.

  • BLOK is based on a trend that's here to stay for the foreseeable future.
  • Its expense ratio, at 0.7%, is below my cap of 1%, though above my ideal figure of under 0.5%.

That said, BLOK doesn't yet have a Morningstar rating. I prefer to invest in ETFs with three or more stars. But BLOK has a lot going for it, and I think it will earn those stars once it matures.

Then there's the First Trust US Equity Opportunities ETF Fund (NYSE: FPX), which seeks to mirror the broader market for new issues.

I think every tech investor ought to consider holding this ETF for the long haul. By doing so, you can grab the upside and excitement that IPOs offer, without all of the volatility inherent in new issues.

In other words, let the fund managers do all the heavy lifting while you sit back and watch the profits pile up.

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The post Three Ways to Play This $15.5 Billion Blockchain Subsector appeared first on Strategic Tech Investor | Michael A. Robinson.

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Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

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