The Coming Multitrillion-Dollar Blockchain Boom
Editor's note: The term "blockchain" has exploded in popularity lately...
But only a small fraction of the U.S. population actually understands this burgeoning technology.
As Brett Aitken explains in today's Masters Series essay – adapted from a pair of recent Stansberry's Investment Advisory special reports – you don't have to open a cryptocurrency account to gain exposure to this coming megatrend... but you have to be careful...
The Coming Multitrillion-Dollar Blockchain Boom
By Brett Aitken, senior analyst, Stansberry's Investment Advisory
It's one of the biggest stories in finance of the last 12-18 months.
But navigating through it is difficult and confusing. There are hundreds of different options, with new listings to choose from every week.
Is it a bubble, or are we in the early stages of a massive bull market? Is it safe, or are you at risk of being hacked?
If you can't tell by now, we're referring to the incredible rise in both popularity and price of bitcoin and other cryptocurrencies.
Of course, we can't know the answer to all of those questions. But what we like most about this new asset class is the underlying technology – blockchain.
A blockchain is really just a ledger. The ledger may serve as the basis for a new form of money (as is the case with bitcoin), or it could serve as the basis for contracts and documentation related to property ownership... track and store voting details in an election... or a new app on your iPhone. Regardless, a blockchain is a shared record book. And your data is secure because of cryptography.
Without getting too caught up in the specifics, one of blockchain's biggest benefits is that it's a decentralized distribution system. Take a look at the following graphic...
As you can see, because it is decentralized, it has no single point of failure because there are many copies of the database, which can verify each other's accuracy.
The network verifies that any new transactions in a blockchain are valid. That makes it tough to hijack the network... which is why blockchain is a secure and trustworthy accounting system.
That said, not all blockchain opportunities are created equal...
The Blockchain Blacklist
We're going to see a lot of major winners in the blockchain revolution...
Some companies will go on to become the next Amazon (AMZN) or Alphabet (GOOGL).
But just like during the dot-com bubble, many others won't survive.
Remember Pets.com?
The pet-supplies company started operations in the late 1990s. It immediately spent massive amounts of capital to market its website to the American public – including $1.2 million for an advertisement during the Super Bowl in January 2000. According to the company, the campaign helped boost its customer base from 15,000 to nearly 300,000.
But it came at a hefty price...
Pets.com hemorrhaged money from the beginning. The company generated $20 million in operating losses and brought in just a little more than $600,000 in revenue during its first fiscal year. Plus, it spent almost $12 million on marketing in that span.
So Pets.com's rapid death shouldn't surprise you... The company went public in February 2000 on the Nasdaq exchange. Just 268 days later, it ceased to exist.
The blockchain revolution will be no different... In fact, it could be much worse.
You see, every major boom brings out its share of impostors and pretenders. With this particular boom, though, we're seeing a major rise in outright fraud...
Action Fraud – a British fraud and cybercrime-tracking organization – reports that bitcoin-related fraud increased by more than 200% last year. That's why it's more critical than ever to separate the honest players from the charlatans. We've identified several firms that may look good at first glance, but "under the hood" they're a complete mess...
Most of these companies generate little or no revenue. Nearly all of them generate net losses – instead of profits – and negative free cash flows.
Even worse, their core businesses often had nothing to do with blockchain before the boom accelerated last year. Instead, they simply shifted their names and their business strategies in the hopes of cashing in on investor enthusiasm for anything blockchain-related.
In short, these companies are looking for any excuse to make you want to buy their stocks. This can work in the short term, fueling drastic rises in share prices. But just like during the dot-com bubble of the late 1990s, these gains are driven by hype – not sales or earnings growth. As a result, these companies' share prices can collapse just as quickly.
Consider the case of The Crypto Company (CRCW.PK)...
Before 2017, The Crypto Company – formerly known as Croe – had nothing to do with cryptocurrencies. In its quarterly financial report from last May, the company didn't provide a single mention of the words "bitcoin," "blockchain," or "cryptocurrency."
Instead, the company designed sports bras and other fitness apparel. Take a look at the company's self-reported description in its financial filings to the U.S. Securities and Exchange Commission ("SEC") in May 2017...
The Company is a fitness apparel company with the mission of creating supportive, protective, and innovative sports bras and fitness apparel for the market. Our featured product in development is the "CroeNest," a pocket in our sports bras and exercise pants that is sweat resistant and radiation resistant for athletes and exercise enthusiasts.
In October, the company filed for a reverse-merger agreement. This deal allowed it to change its name from Croe to The Crypto Company. The new name, plus a series of high-profile news releases, convinced investors to send its stock price soaring by thousands of percent in late 2017. At one point, the company's valuation sailed north of $12 billion...
But it turns out that The Crypto Company CEO Michael Poutre has more experience violating securities laws than he does with the blockchain. Back in 2010, Poutre was fined and suspended from trading for two years by the Financial Industry Regulatory Authority.
This lack of experience shows up in the company's operating results...
Since its inception, The Crypto Company has generated almost no revenue or earnings. The company has never had more than $5 million in assets. Yet the company generated enough hype to boost its market cap to more than $12 billion during the peak of the bitcoin mania.
Then, the SEC stepped in...
Citing "concerns regarding the accuracy and adequacy of information," the SEC halted trading of The Crypto Company shares in late December. When trading resumed in early January, the stock price collapsed. Unsuspecting investors who bought in at the top suffered losses of 90% or more, depending on when they managed to get out.
Of course, The Crypto Company is just one example... Dozens of other companies are running similar strategies designed to separate investors from their hard-earned money.
Our goal is to help you avoid this kind of catastrophe. We've compiled the following list of red flags to watch out for as you navigate the Wild West of crypto companies...
- Companies with no history of blockchain or cryptocurrency operations before 2017 (to weed out the "true believers" from the latecomers who are capitalizing off investor hype).
- Companies with less than $100 million in annual sales (to filter out companies with unproven business models).
- Companies with negative earnings and cash flows (to ensure a positive return on investment).
- Companies led by CEOs with histories of fraud and/or corporate mismanagement (so we can only invest our money with leadership teams we can trust).
Regards,
Brett Aitken
Editor's note: Numerous high-profile investors – the same ones who made billions getting in early on the Internet revolution – are betting big on blockchain technology. Some have even called it "the most disruptive technology in decades."
Google, Amazon, and Facebook executives are investing billions of dollars in the blockchain. Research firm Gartner says this $4 billion market could become a $3.1 trillion market in just a few years. It's easy to see why blockchain has the power to create more millionaires and billionaires than any other technology in history.
But as Brett explained in today's essay, you can't simply buy any blockchain-related company. He and the Stansberry's Investment Advisory analysts have identified the single best way to invest in the blockchain revolution. And they just put together a brand-new presentation detailing this opportunity. Watch it here.