Do you remember the California gold rush? Well, unless you’re getting on for 200 years old, you won’t recall it personally, but you know what I mean.
After the first gold discovery in 1848, around 300,000 people flocked to California to seek their fortunes. Many hit on the shiny stuff and got rich, but others found nothing but dirt and ended up paupers. But you know who made almost guaranteed profits? The traders selling the picks, the shovels, the boots, the sacks, the carts…
Whenever there’s a new get-rich-quick craze, no matter who actually wins and who loses at the sharp end, there’s almost always a nice load of cash to be made by people providing the tools and services needed by the pioneers. But how does that apply to Bitcoin?
Google thinks it knows, Sir Richard Branson thinks he knows, and a whole bunch of venture capital investors think they know. And very shortly, you’ll know too.
If you’d been an early Bitcoin prospector, how you’d have fared would have been entirely down to the fortune of your timing. Had you got in before the madness took hold and sold out near the $19,783 peak, you’re probably relaxing on a beach somewhere and not reading this.
But if you’d swallowed the hype and invested near the peak, you’d have every right to feel sorry for yourself right now. The price has had a positive 2019, reaching a smaller peak in July, but but I reckon we’re in for a long, if erratic, decline.
So what kind of investment am I actually talking about? Now, there’s obviously no need for Bitcoin shovels, or coin mining boots, but cryptocurrency investors do need a high-tech infrastructure. They need crypto exchanges, they need coin wallets, they need security, they need dealing services… and that’s where the moneybags I mentioned earlier come in.
Branson, Google… they’re among the high-flyers who have stumped up investment cash behind a cryptocurrency investment company called Blockchain. It seems the firm (which isn’t responsible for the actual blockchain technology) now seeks an additional $50m of venture capital to invest in cryptocurrency startups.
And though it has stakes in various companies, it’s also in the business of producing cryptocurrency wallets and providing crypto-related data. There are an estimated 40m wallets in use around the world, so that alone is a decent market.
I’m not suggesting you should call the company and try to get a for slice yourself. I’ve not examined Blockchain and I’ve no idea whether it would be a good investment, even if we could buy shares in it (which we can’t, as it’s not publicly listed).
But cryptocurrencies and related blockchain technology are here to stay. Once the get-rich-quick mania has subsided, I’m certain the genuine rational uses will grow, and there’ll be a maturing of the technology and the market. And traders, merchants and other users will need infrastructure services.
Those will be the picks and shovels companies of the crypto business — providing actual services to actual customers, and making actual profits that can be used to judge rational share valuations. That’s where I think there’ll be sustainable growth.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.