Blockchain Is About to Hack the Investment Code

blockchain technology

Our intuition about the future is linear. But the reality of information technology is exponential, and that makes a profound difference. If I take 30 steps linearly, I get to 30. If I take 30 steps exponentially, I get to a billion.

Author and futurist, Ray Kurzweil

Are we approaching an ‘exponential moment’ in information technology?

Yes, we are. Imminently.

And my view is that investing wisely around this event will give you the chance to create massive wealth over the next few years.

In fact, it’s already happening.

Over the few last weeks, some strange things have been happening to a certain group of stocks.

You’ve probably never heard of most of them. But, if the research I’m releasing next Tuesday is right, that won’t be the case for long. These stocks are going to hit the headlines in a big way in 2018. Because they’re key players in what I believe is going to be the biggest technological ‘step-change’ in 60 years.

Take a look at some recent one-month returns.

BTL Group Ltd [CVE:BTL] just went up 56% this month.

Hive Blockchain Technologies Ltd [TSX:HIVE] is up 102% this month, having closed $30 million in funding.

One obscure biotech company changed its name and rocketed 137% in a few days!

Something is taking shape…

Next Tuesday you’ll find out what that something is. But today I want to take a step back and explain why this coming event could create an immense ‘step-change’ in how speculative stocks are valued.

How a 10-cent stock will become a 20-cent or 30-cent stock literally overnight.

Sounds crazy, doesn’t it?

Well, if I’m right, it’s the logical consequence of what’s coming.

The logical outcome of a world moving beyond bitcoin.

A real game-changer…

This could all happen very quickly once the market realises it. But if you get in now, you’ll already be set to potentially ride a multi-decade shift in the markets.

First, let me deal with a myth.

One taught at business schools up and down the country.

It’s a myth that makes sense to academic boffins with no ‘skin in the game’. But, like a lot of academia, it doesn’t actually help you make any money.

And worse still, believing it stops you from seeing the hidden potential in the stock market.

Let me explain…

A stock moves up 234% in a year.

Another one moves up 4,011% in just three years.

A crypto can do this in a few days…

This is pure madness, isn’t it?

Actually, it’s not.

It’s perfectly logical.

Well, let me add a proviso here — it’s perfectly logical sometimes.

Anyone who has read Charles Mackay’s seminal book, The Madness of Crowds, knows the human species is especially prone to a bout of mass craziness once in a while.

But there are also precise mathematical reasons for why a company’s value can — and indeed should — move so dramatically.

And why it might not be madness to jump on board a fast-rising trend.

Time, Rate of Growth and Uncertainty

The maths revolves around three concepts. These are concepts central to how a professional evaluates an investment opportunity.

They are ‘time’, ‘rate of growth’ and ‘uncertainty’ (risk).

When you understand the interplay of these three variables, you start to look at speculative opportunities properly.

It’s actually a really simple concept dressed up in fancy maths to confuse people. When I explain it, you’ll get it for sure.

And there’s a side benefit when you do.

You see, by understanding how the big players look at things, you start to realise what they’re going to do next. Before they have a chance to do it.

I’ll come back to this point shortly.

But first, what’s the myth I talked about?

It’s the myth of ‘efficient markets’.

Boffins have sold the myth of efficient markets for so long that everyone comes out of university thinking this is the way things are.

The mainstream investing industry revolves around this very concept.

It’s the theory that, because so many investors are looking at a stock, the price reflects all known information.

It’s therefore impossible for you or me to beat the market. That is without taking on exceedingly high levels of risk in comparison.

The conclusion?

You should just invest in an index fund and be done with it.

Now, there are arguments to be made for this theory with big stocks. Not that I’m completely convinced…but there are certainly arguments for it.

But in the small-cap space, it’s patently ridiculous.

There are two main reasons for this.

First, most big funds don’t actively monitor small-caps. They’re simply too small to bother about.

It’s insiders and ordinary investors driving the prices here. It’s more like a betting agency in which you are betting against other punters rather than the bookmakers.

Secondly, small-caps live in an environment of high uncertainty. And it’s impossible to quantify this uncertainty with any accuracy.

There might be no cash flow or profits, or a new technology whose success is uncertain.

But if it does realise whatever potential it has, the gains could be enormous.

This uncertainty results in a far wider range of estimates than in a blue-chip stock with a ready market and products.

But a lot of analysts use the same formula for both.

The Formula for Exponential Gains

This formula is a Discounted Cashflow Forecast (DCF).

Everyone uses them.

The idea is that you find a price that investors should pay now for a cash-flow generating asset in the future.

I won’t get into the nitty-gritty here but I will explain the effects of time, growth rate and uncertainty. And why blockchains are going to change this up.

First, let’s look at time.

This is simple. The longer it takes for a company’s cash flow to grow, the lower the company’s valuation is at present.

Take, for example, two companies set to pay out a million dollars over 10 years. One makes $100,000 payments every year, while the second pays $500,000 in the first year and $55,555 every year thereafter. Guess which company is more valuable?

The second one, of course. As you’re getting cash sooner.

The second factor is growth.

Again, this is simple to understand.

If a company is increasing its rate of revenue and profit growth at a faster rate than a comparable company, its valuation is better.

And lastly, there is uncertainty. This is the ‘discounted’ part of a DCF.

Professional analysts discount future cash flow by a rate to account for the riskiness of the project.

A venture capital fund uses a rate typically between 50–70%. Whereas a blue-chip stock may only have a discount rate of 8–12% applied to its future earnings.

The higher the discount rate, the lower the present valuation.

Small changes to this figure make a large difference.

What Does This Have to Do with the ‘Step-Change’ Event?

Let’s put everything together.

Blockchains are potentially going to make a whole host of speculative stocks more valuable.

How?

First, they’ll speed up access to data, drastically cutting research times. As you’ll recall, time is a crucial part of the DCF formula.

They’re then going to potentially increase the growth rate for certain ‘blockbuster’ stocks. These are stocks with the most to gain from the new reality we’re about to see.

And lastly, the wave of money going into blockchain technology is significantly decreasing the technological risks.


Source: CoinDesk
[Click to enlarge]

This funding level reduces the risk in blockchain technology by increasing the amount of resources into the research side of things.

Of course, when you are investing in cryptocurrencies, this can make it harder to pick the winning crypto…

But if you’re investing in stocks that benefit from blockchain tech, this is actually a good thing.

Big money, idealistic motivations, and game-changing possibilities.

It’s a historic point in time. And, in my opinion, a very exciting one for investors like you.

And it completely alters the investment code.

Once the professional analysts realise what’s happening, the value of every single blockchain stock goes up.

It’ll look like madness.

But it won’t be.

It’s the exponential effect of undeniable maths, powered by a blockchain revolution set to start soon.

In just a few days, I’ll release my research into this once-in-a-lifetime event. And how you can profit from it. Stay tuned.

Don’t miss it…

Good investing,

Ryan Dinse,

For Markets & Money

Ryan Dinse

Ryan Dinse

Ryan Dinse is an analyst at Markets and Money.

He has two decades of experience in financial planning, equity analysis and credit markets.

Ryan combines fundamental, technical and economic

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