A constantly changing narrative is a bad sign that something is a bad investment. The debate over bitcoin a few years ago was that it would replace fiat currency like US dollars. It didn’t, and probably never will. No one is going to use a currency that is annoying value and is not supported by anything at all.
Now, suppose that bitcoin is “digital gold,” a store of value that can protect investors from inflation. Like real gold, there is a finite amount of bitcoin that can ever exist. But unlike real gold, there are an infinite number of potential competitors. Cryptocurrencies are a dozen, and there really is nothing special about bitcoin other than recognizing its name.
The price of bitcoin has soared over the past year, up from less than $ 10,000 at the start of 2020 to nearly $ 40,000 today. I would venture that most people who buy bitcoin do so because the price is rising, not because they actually believe in its usefulness. That’s what happens during a bubble – the rising price becomes a narrative, the fear of losing out overwhelms rational thinking, and people summarize all sorts of post hoc justifications for investing in things with little substance .
There’s no telling how high bitcoin will rise before the bubble finally bursts. Plenty of people will make lots of real money, but many more will be badly burned. You could ride the frenzy and hope to get out in time, or you could invest in a leading company using the blockchain technology that underpins cryptocurrencies like bitcoin for real-world applications. One such company is International Business Machines (NYSE: IBM).
The blockchain leader
The global market for blockchain-related products and services is expected to grow from just $ 3 billion last year to nearly $ 40 billion in 2025, according to projections from MarketsAndMarkets. That estimate might be far off base, but explosive growth is certainly a possibility. The banking and financial services industries are expected to account for the largest share of this spending over the next five years as blockchain technology is used to secure transactions.
IBM is an early leader in the blockchain space. In an analysis of Everest Group Research performed at the end of 2019, IBM ranked top of the pack in terms of market adoption and lagged behind Microsoft in terms of ease of use.
IBM has worked on over 500 blockchain projects to date. Notable projects include:
- TradeLens, a blockchain platform that aims to digitize the global shipping industry. TradeLens had over 150 members using the platform in March 2020, including more than 100 ports and terminals, more than 20 ocean carriers and intermodal providers, and more than 10 government authorities.
- Food Trust, a blockchain platform that tracks food through the supply chain. The system aims to, among other things, greatly accelerate the tracking of the source of foodborne illness. Companies using the Food Trust include a mega-retailer Walmart a Nestle.
- World Wire, a blockchain platform for moving funds across borders. World Wire is able to clear and settle cross-border payments in seconds using cryptocurrencies that have been pegged to real-world currency.
As the financial services industry is expected to be a major customer for blockchain services, IBM’s existing relationships with financial firms give the company a major advantage. One example: IBM’s mainframe systems handled nearly 90% of all credit card transactions in 2018, and the systems processed close to $ 8 trillion worth of payments each year.
Shares of IBM have not performed well over the past few years as the company works to shift its focus to areas of growth such as hybrid cloud computing, artificial intelligence, and blockchain. That transformation is continuing, and the company’s financial results have not been particularly impressive lately.
But IBM is in the midst of what could be an explosive growth market over the next five years. If blockchain starts, IBM will be one of the biggest beneficiaries.