The cryptocurrency boom attracted tens of billions of investor dollars last year, feeding and extending the rapid price appreciation of the 10-year-old Bitcoin electronic currency and several of its successors and imitators.
Is this a classic bubble? After all, cryptocurrencies lack the wide acceptance of cash or even the tangibility of gold. Whatever the value of an individual cryptocurrency, there are many signs this bubble — like other past market excitements — points to potential real investment opportunities beneath and behind the headlines.
Around the world, as speculative investors and the brokers who cater to them are jostling to scrutinize the latest unregulated initial coin offerings (ICOs), large U.S. companies are applying the underlying technology that makes cryptocurrency possible. More specifically, companies are testing adoption of systems relying on blockchain, the cloud-computing version of the electronic ledger programs that business has relied on for decades.
It’s useful to think of blockchain as a decentralized and networked update of Microsoft Excel-style spreadsheets that allow trusted and carefully-vetted, yet anonymous, users to change values and calculations simultaneously as new data is introduced. This is far more efficient than paper, email, or even electronic-messaging-based systems.
Blockchain gives business “a new architecture of trust,” according to Professor Kevin Werbach of the University of Pennsylvania’s Wharton School. And with that trust comes the prospect of cheaper, faster, and more secure accounting, negotiations, and transactions.
Remember that the Internet boom that has driven Internet-defining and Internet-dependent stocks including Alphabet/Google, Amazon, Facebook, and Netflix towards the top of the market followed directly on the dotcom and telecom bubble of the late 1990s. There are some parallels with earlier U.S. boom-and-bust cycles in radio, railroads, telegraphs and telephones, and TV electronics.
A number of these initial speculative investments proved overvalued for many enthusiastic investors, but the underlying technologies have proven durable and profitable for investors who bought broadly and judiciously and held for the long term.