By Paul Vigna
Investors looking for a piece of the cryptocurrency game have one avenue that is sometimes overlooked: stocks.
Buying bitcoin itself is a minefield of volatility. The price is declining again, and another high-risk crypto startup called it quits. On the other hand, Facebook Inc. is building its own cryptocurrency. Governments and companies are still exploring blockchain technology.
There is still an opportunity for investors, assuming they can make the right bet.
In five years' time, the technology behind bitcoin and blockchain is probably going to be used across a range of industries, said Tom Forde, an analyst at D.A. Davidson. The trick is figuring out which cases will bear fruit, and which companies are going to profit from it.
"That's what makes it so exciting and challenging at the same time," he said.
Mr. Forde recommends a checklist for investors, who he suggests tread cautiously: Does the company have patents? Is there a business that can be built off those patents? Is it a case where the first company can be successful, or will it take several generations of the technology? Is there enough financing to make the business work?
Mr. Forde follows Overstock.com Inc. closely (he rates it a "buy"), but he also keeps a list of dozens of other companies in the space as potential investment opportunities. He breaks them into three categories: existing companies, crypto companies and opportunists.
Big chip maker Nvidia Corp. became a crypto darling when "miners" started buying its specialized videogame chips. That helped push the stock to an all-time high of $289 in October 2018. When crypto cratered, though, Nvidia's stock stumbled. Today it has stabilized and resumed its march upward, up 63% year-to-date at $217.
Among, crypto companies, Toronto-based Hut 8 Mining Corp. operates mining services and went through a bout of belt-tightening in 2019 after the crypto bubble popped. In its recently reported third quarter, the company posted a loss of $1.7 million, partially offsetting a $26 million profit for the first nine months of 2019. Shares were most recently at $1.41.
Longfin Corp., meanwhile, is an example of how risky this space can be. The company went public in 2017, listing on Nasdaq, and raised $5.7 million. It claimed to have two businesses, trade finance for commodities trading and risk-management software. The timing was good; the stock rose as high as $17 in early 2018.
Today, the stock still shows up on the charts, at 40 cents even, but the company is no more. It was investigated by the Securities and Exchange Commission and shut down. Founder Venkata Meenavalli was charged in June with committing fraud by the SEC and Justice Department.
Write to Paul Vigna at firstname.lastname@example.org