Note: With the holidays just around the corner, we’re giving Tony a well-deserved break for the next two weeks. You’ll get his next column with his latest investing ideas about the technology that powers cryptocurrencies, blockchain, on Monday, Jan. 7.
Cryptocurrencies, including Bitcoin, got clobbered this year. But that hasn’t stopped a growing number of companies and institutions from welcoming cryptos as an instrument of payment.
In fact, Ohio just became the first state in the nation to accept cryptocurrency. Businesses there are now able to pay all their corporate taxes — from cigarette sales taxes to employee withholding taxes — in Bitcoin.
Arizona, Georgia and Illinois are also considering cryptocurrencies for tax payments, but this initiative is currently stuck in legislative red tape.
Still, this is an important win for Bitcoin, made even bigger because it has earned an official government approval. The message here is clear. Cryptocurrencies are a viable form of digital currency that can be used by anybody.
From the Buckeye State to State Farm,
Bitcoin Adoption is Fast Blossoming
Some industries are riper than others for digital currency and crypto technology disruption. Perhaps none more than the insurance industry.
Insurers are so overwhelmed with reams of paperwork and sensitive customer information that this industry is a perfect candidate for automation.
Innovation is always a series of baby steps, and forward-thinking State Farm has already started to integrate the underlying cryptocurrency technology — blockchain — into its claims processing, data storage and payment system.
Indeed, State Farm is the first insurance firm to adopt blockchain technology in the “subrogation” process. That’s when one insurance company settles a debt with another.
Say you have Allstate auto insurance, and you get into an accident with someone who has State Farm auto insurance. When Allstate pays State Farm, that’s called “subrogation.”
In a recent statement about its blockchain initiatives — and how those could speed up, as well as slash the cost of, processing claims — the company said:
“State Farm is working on a blockchain solution that could speed up the subrogation process for auto claims. The company is testing the solution against existing subrogation processes to determine if it can be a viable product for insurance industry adoption and bring value to customers.”
“State Farm is working with another insurer to understand how an enterprise blockchain solution can be used to reduce the time needed to complete the subrogation process by securely and automatically compiling all subrogation payment amounts, netting the balance and facilitating a single payment on a regular basis between insurers.”
State Farm may be the first, but it won’t be long until they have a whole lot of company.
Venture capitalists are taking notice, too.
VCs Boosted their Blockchain Stake
From Millions to Billions in 2018
Venture capitalists, especially the zillionaires in Silicon Valley, are some of the brightest investors on the planet. They have to be good, because they typically invest their own fortunes alongside high-net-worth investors.
And venture capitalists are throwing huge dollars into blockchain, the underlying technology that aims to make cryptocurrencies a secure, safe form of money.
A report from Outlier Ventures, “Q3 State of Blockchains,” reported that venture capitalists invested $2.85 billion in 119 deals just in just the third quarter of 2018 alone.
That a 316% year-over-year increase!
Outlier Ventures is a European firm. If you read my recent Weiss Ratings column, you know that the world is going cashless and Sweden is leading that charge. And the opportunity for blockchain companies is baked into this megatrend in the making.
In the words of one of the partners at Outlier, Eden Dhaliwal:
“This quarter saw significant negative sentiment around utility tokens from an investment standpoint. Many investors have grown frustrated over regulation and exasperated over valuations of tokenized networks. This represents a new cycle back toward equity-based blockchain investments until the crypto community makes advances in validating tokens as a new asset class with viable business models.”
My point is simple: Don’t make the mistake of lumping cryptocurrencies and blockchain in the same investment box. They are VERY different, and some of the biggest cryptocurrency profits you can make could come from investing in:
- The companies that are building out the blockchain infrastructure, and
- Forward-thinking companies, like State Farm, that are making blockchain the technological centerpiece of their business.
In fact, I think there may be more money to be made by investing in blockchain stocks than cryptocurrencies themselves.
Remember, every time Bitcoin crashed like it did recently, financial analysts came out of the woodwork and declared “Bitcoin is dead.” They were wrong every time.
Also remember that, prior to every major crypto bull market, we started seeing more and more people actually using cryptocurrencies — just like we are seeing in Ohio and with State Farm. I expect we’ll be talking a LOT more about who’s adopting cryptocurrencies in the coming year.
And when Bitcoin and other digital currencies find their footing and their prices start going up again, that will just be the icing on the cake for the companies that provide the technological building blocks for it.