Blockchain

Don’t look now, but things are starting to look up for Bitcoin again!

(You can be forgiven if you didn’t realize that Bitcoin was NOT looking up just a week ago.)

You see, midway through December, Bitcoin lost nearly half of its value, falling from a peak near $20,000 to below $11,000 in less than a week’s time. Naturally, such a dramatic decline took a lot of the excitement out of the cryptocurrency market.

Incidentally, my little brother jokes that he’s one of the only people in the world who has actually LOST money in Bitcoin, as he waited to get into the market until the day before Bitcoin hit its all-time high.

This past week, Bitcoin started moving higher again, and has recouped about half of its fateful December loss.

Given the number of questions we’ve received about Bitcoin and cryptocurrencies here at The Daily Edge, I wanted to cover some of the ways responsible investors can make money on cryptocurrencies — or more accurately, on the blockchain technology behind the cryptocurrency action.

Let’s take a look at what’s going on!

What’s the Deal With Blockchain?

A few weeks back, we asked for your feedback on what we cover here at The Daily Edge. The overwhelming majority of you mentioned that you would like to know more about Bitcoin and other cryptocurrencies.

More specifically, there were a lot of good questions about how blockchain (the technology behind Bitcoin) works, and how we as investors can make money from this technology.

You may already know that I’m not a big fan of “investing” in Bitcoin. The currency is highly speculative and volatile, and at this point it’s unclear whether the currency will actually be worth anything in the long run.

(Yes, I know there are many of you who heartily disagree with me. And that’s certainly okay. Suffice it to say that I’m not opposed to people speculating on Bitcoin with extra cash that they don’t need immediately. But I wouldn’t bet money that you need on Bitcoin today.)

Blockchain technology, on the other hand is a very important tool that will change financial transactions forever.

If you want a detailed explanation of how blockchain works, I would highly recommend an article from blockgeeks.com which you can find here.

Basically, blockchain is a technology that keeps a set of secure online records that is spread across many different computers. This is important because no single location is responsible for the set of records.

You could compare blockchain to a giant Google Doc or Google Spreadsheet that many different people can access all at once. So when one change is made to the blockchain, everyone has access to that change at the same time.

Since blockchain records are spread across many locations, it’s nearly impossible to hack into the database. That’s because you would have to simultaneously hack into all of the computers to change the database of records. So blockchain has developed a reputation for being very immune to hacking or false information.

So why would many different computers take part in this grand network?

Well, the creator of blockchain created an incentive, giving a “token” or “coin” to computers on the network that solved complex mathematical puzzles. And that is what has become known as “Bitcoin mining” where new Bitcoins are created.

Since there are a limited number of Bitcoins, investors and traders are willing to exchange them for dollars or other currencies based on limited supply and market demand.

So How Do I Make Money on This Blockchain Technology?

If you’re like me, you find blockchain interesting…

But until it helps me make money, it’s really just an intriguing novelty.

For serious investors (not just Bitcoin speculators), there are two primary ways that make sense for making money from Bitcoin.

First, I suggest looking at payment processing companies that are either already using Bitcoin, or are likely to start processing Bitcoin transactions in the future.

A couple of examples include PayPal Holdings Inc. (PYPL) and Square Inc. (SQ).

Payment processors that accept Bitcoin transactions will be able to collect fees from every transaction processed. And that means these companies will profit from Bitcoin regardless of which direction the price of Bitcoin trades.

That’s important because you want companies you invest in to generate reliable earnings, and not rely on price movements that are very hard to predict.

A second way of profiting from Bitcoin is to invest in semiconductor manufacturers.

Semiconductors are used by computers to process blockchain transactions and to mine new Bitcoin units. Demand for these processors has driven chip stocks sharply higher, and I expect this trend to continue in 2018.

Two examples of these stocks are Nvidia Corp. (NVDA) and Advanced Micro Devices (AMD). As the blockchain network of computers continue to grow, these companies will sell more chips, and generate higher profits.

Keep in mind, semiconductor stocks are also seeing strong demand from other technology areas such as artificial intelligence and self-driving cars. So semi stocks have a number of great reasons to keep moving higher this year.

We’ll have more to say about cryptocurrencies and blockchain in the weeks ahead. For now, let’s take a look at the five things you need to know this morning…

5 Must Knows For Monday, Jan. 8

The Power Of Sport- North Korea has accepted the South’s offer to meet on Tuesday, January 9th in the demilitarized zone between the two countries. This comes just in time for next month’s Olympic Games that will take place less than 60 miles from the border in PyeongChang, South Korea. This will be the first formal gathering between the two nations since 2015. On the agenda is North Korea’s participation in next month’s Games and the overall state of Korean relations.

Tech’s Biggest Week- It’s that time of the year. All of the hottest names in technology are headed to Las Vegas to showcase their newest products and gadgets at the Consumer Electronics Show (CES). The event, which runs from January 9th through 12th, is the biggest event of its kind as representatives from every tech company you can imagine will be in attendance — the list includes Amazon, Ford, Intel, Walmart Ecommerce and many, many more.

And as Daily Edge subscriber, you’ll have a firsthand look as your Managing Editor Davis Ruzicka will be in attendance! Stay tuned to these alerts in the coming days for interesting updates and the investment strategies that will accompany them.

Earning Season Kickoff- Volatility is back! (Well… sort of). Fourth quarter earnings season begins this week with the earnings reports of some of The Daily Edge’s favorite companies. So over the next few weeks, expect to see some major moves in the stock market. On Wednesday, homebuilders KB Home (KBH) and Lennar Corp. (LEN) announce earnings. And on Friday it’s the bank’s turn with JP Morgan (JPM), Wells Fargo (WFC), Blackrock (BLK) and PNC Financial (PNC).

Yellen News- In Federal Reserve news, this week will give some key insights into the minds of Central Bankers. On Thursday, New York Fed President William Dudley is scheduled to give his thoughts on the direction of the economy in 2018. Currently, unemployment levels are hovering around historic lows but inflation is yet to pick up — which has kept Yellen from raising rates faster. We’ll see if this changes on Friday when the U.S. Labor Department releases its consumer price index.

Another Case of Insider Trading?- Intel CEO Brian Krzanich is under scrutiny for his recent selling of personal Intel stock. On November 29th, Krzanich sold shares and exercised stock options worth $39 million — netting him nearly $25 million. However, this was just weeks before the public was informed about a security flaw impacting the majority of Intel chips used worldwide (Intel has known about the vulnerability for months). It’s now up to the SEC to decide if the information was material or not. According to the stock price, which fell almost 5% when the information went public, the information was in fact material.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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