Traditionally, mid-December is the time of the year when investors reflect on how well, or poorly, the stock market treated them during the year. But that's not the case this year. In 2017, all eyes are seemingly fixed on soaring cryptocurrencies valuations.
Since the year began, the aggregate value of all digital currencies combined has catapulted from $17.7 billion to $519 billion, a more than 2,800% increase. Mind you, it has taken the broad-based S&P 500 decades to deliver similar returns. Not surprisingly, these gains have left both novice and experienced investors awestruck, and in many cases, itching to jump into cryptocurrencies.
The buzz about blockchain technology
You might be asking yourself, what's the buzz behind virtual currencies? While the answer is complex and involves a confluence of factors, most tie back to what's arguably the biggest catalyst of all: blockchain technology.
Blockchain is the digital and decentralized ledger that underlies most cryptocurrencies, including bitcoin (BTC), the world's most popular virtual currency. It's responsible for recording all transactions, and does so without the need for a financial intermediary, like a bank. Most pundits believe blockchain technology could be worth billions because of the advantages it brings to the table over the current means of money transmittance.
For starters, and as noted, blockchain is a decentralized technology. This means it has no central data hub that cybercriminals can attack with the hope of crippling an entire cryptocurrency. Instead, data is distributed on this ledger throughout the world. While this doesn't make a blockchain impervious to cyberattacks, it does mean that a cyberattack has virtually no chance of bringing a cryptocurrency to its knees.
Aside from security improvements, there are cost reductions expected, too. Because there's no third party to act as the intermediary during a transaction, there are fewer mouths to feed (i.e., pay). Lower transaction costs could be a means to higher margins for financial-services companies, or perhaps a pathway to cheaper ancillary fees involving transactions for the consumer.
But the biggest upgrade might just be transaction settlement times, especially involving cross-border transactions. Banks are only open during normal business hours for five or six days a week, and cross-border transactions often get held for days at a time. With blockchain, miners are busy proofing transactions 24 hours a day, seven days a week, meaning there's the potential for quick, or even instantaneous, transactions.
Three stocks heavily invested in blockchain
Though most blockchain development is happening in the cryptocurrency space with start-up companies, there are some high-profile publicly traded stocks that are investing heavily in the development of blockchain technology. According to data from CB Insights, the following three stocks have the most invested in this burgeoning technology over the past five years.
1. SBI Holdings
The biggest investor in blockchain over the past half-decade has been Japan's SBI Holdings (SBHGF 1.88%), with eight direct investments noted by CB Insights. Last year, SBI Holdings, the financial-services division of SBI Group, invested in bitFlyer, a Japan-based bitcoin exchange. Aside from bitcoin trading, bitFlyer was also known for its blockchain applications, which is what appears to have attracted SBI Holdings.
More recently, aside from working on its own blockchain technology, the company has partnered with Ripple -- yes, the same Ripple that's doubled in value over the past week. In September, SBI announced that it'd be testing Ripple's cross-border blockchain technology as a means to transfer money between Japanese and South Korean banks. If this sounds familiar, it's because Ripple also landed a partnership to send cross-border payments on American Express's FX International Payment network to Banco Santander accounts in the U.K. this past November.
In late October, SBI Holdings immersed itself in the crypto-universe even further when it announced that it would begin acquiring and mining cryptocurrencies to solve problems within the crypto marketplace, and to gather "systemic knowledge" of blockchain technologies. The company specifically listed its interest in mining bitcoin and bitcoin cash, as well as investing into U.S. Ripple.
Internet search giant Google, which is a subsidiary of Alphabet (GOOG -1.62%)(GOOGL -1.81%), is second in terms of aggregate blockchain investments over the past five years, with six investments on record.
For instance, blockchain-based enterprise storage-solutions company Storj raised $3 million in seed funding this past February, with Google Ventures being among its major contributors. What's really notable about this funding, aside from the fact that it was the first non-token cash raise for Storj, is that it focuses on non-financial applications and use cases. According to Coindesk, Storj's technology allows an open network of users to provide data hosting to clients via a blockchain. Storj then sells this service to content providers.
Just two weeks after its investment in Storj, Alphabet's Google Ventures played a key role in the $24 million raised by Veem, which is building blockchain technology to provide quicker and cheaper remittance services for small- and medium-sized businesses. Those aforementioned lower transaction costs tied to blockchain could be key in putting small- and medium-sized businesses on a more level playing field with big businesses.
The third most-active investor in blockchain technology in recent years is online home-goods retailer Overstock.com (OSTK -9.98%). Of the three, this is probably the least surprising of all, especially with CEO Patrick Byrne considering a divestiture of online retail operations in favor of focusing solely on blockchain development.
In particular, Medici Ventures, a subsidiary of Overstock, is currently working on the Medici t0 blockchain. This project, which has thus far cost Overstock quite a pretty penny, is designed to develop a blockchain-based securities lending system that'll go head to head with Wall Street, and most likely do so for a lower cost.
Just this past week, Overstock also announced a new joint venture between CEO Byrne and economist Hernando de Soto to build a blockchain-based global registry system that's designed to improve property rights in the developing world. The entire reason Byrne has hired Guggenheim Partners to explore a sale of Overstock's retail business is to generate funding for this joint venture.
We're bound to see new players enter the blockchain arena in the months and years to come, but for the time being, these three stocks are worth paying attention to.