How to Trade the Technology Behind Cryptocurrencies

Since mid-November 2018, the Dow Jones fell more than 2,000 points. The NASDAQ plummeted more than 600. The S&P 500 slipped 200.

Going along for the ride, cryptocurrencies fell apart, too.  

But in our opinion, the pullback is overdone. We don't advise selling anything. Instead, in times of panic like this, sit tight and hold, remembering that markets are resilient.

We can also follow the rules of Warren Buffett. He may not be a fan of cryptocurrencies, but his investing ideas still hold weight.

Rule No. 1 - Don't Follow the Herd says Buffett

One of the key reasons that many investors underperform in the market is because they move in and out of assets at the wrong time. Oftentimes, an investor sees everyone else making money from rising markets. This is when they tend to throw every spare dollar into their investments. Unfortunately, when that same investor sees a group of other investors selling, that investor sells too. Herd mentality is a portfolio killer, though.  Avoid it.

Rule No. 2 - Be in a Strong Position to Capitalize

With cash on hand, Buffett has the financial flexibility to take advantage of any opportunity that presents itself. As the billionaire often points out, keeping some cash on hand allows you to benefit from corrections without having to sell other investments from your portfolio.

Rule No. 3 - Don’t Put all your Eggs in One Basket

Remember to diversify in and outside actual cryptocurrencies. 

One way to do just that is by investing in the technology underlying cryptocurrency.


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Blockchain Technology

For those of you unaware, blockchain is a distributed database.

Here, data can be backed up on potentially thousands of computers all over the world.

Information here is also heavily encrypted. Even if hackers compromise information on a single server, there are thousands of other copies around the globe. What's interesting is that all copies of the database must agree with all other servers that any changes to data were legitimate. If even one server cannot confirm changes are legitimate, changes are rejected immediately.

That may oversimplify it, but you see the benefits it offers.

What it allows you to do is produce a dependable ledger without record-keepers. It also eliminates the dangers that come with data being kept in a central location. Not only does it foster trust, it replaces third-party intermediaries with all blockchain participants certifying the transactions taking place.

To profit from blockchain, we begin to look for stocks that can help bring blockchain to the masses.

For example, Hive Blockchain Technologies, is based in Canada and directly deals in cryptocurrency through mining. In fact, it currently mines eight cryptocurrencies including Ethereum, Bitcoin, and Ripple. It's one of the many companies that uses blockchain technology to verify crypto-transactions.

We also want to explore blockchain as corporate America wakes up to the opportunity, too.

While many retailers are just toying with the idea of integrating blockchain technology, Walmart is exploring the launch of trials. All in an effort to drive down supply chain costs, and help keep pace with giants, like Amazon.com.

Along the way, it's been applying for and winning patents for blockchain ideas.

Blockchain-Based Health Care Records

In late June 2018, Walmart won a patent for a system that would house medical records on the blockchain. According to that application, the system would involve a wearable device that houses patient data on the blockchain.

According to Fortune, "This system would depend on a wearable device which houses the actual patient data (on a blockchain). Another device, a biometric scanner, in conjunction with an RFID scanner, will be used to identify and then unlock the medical data stored on the wearable device.

Two separate digital keys, one private and one public, would be at play, with the private key decrypted by scanning a major biometric feature of the patient.”

The Bitcoin-Powered Electrical Grid

According to the patent, "residential homes or even large, multisite organizations could use a blockchain or another type of distributed ledger to build a network of energy-consuming devices. They could then assign each device a set amount of bitcoin or another cryptocurrency, which it could use to purchase energy from the utility provider over a set billing period, such as one month," as noted by CCN.

Trackable Food

Walmart and IBM partnered with several food companies, including Dole and Kroger, on a cooperative blockchain project. By doing so, the companies can track food items globally on multiple supply chains.

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