The use of blockchain was already growing at a nice clip thanks to a growing list of usecases spanning almost every industry. Industry research consultant MarketsandMarkets projects that the size of the blockchain market will grow at a 67.3% CAGR over the next five years from $3 billion to $39.7 billion in 2025.

Source: MarketsandMarkets

They predict that the primary sources of blockchain industry growth be driven by:

  1. venture funding,
  2. enterprise investment in blockchain technology,
  3. the rise of blockchain solutions for supply chain management.

Further geographic expansion into emerging markets and the continued growth of private blockchain will also be catalysts for future growth.

Blockchain is transforming from its roots as the distributed infrastructure supporting cryptocurrency, to an important technology in its own right with numerous industries benefiting from its transparent distributed ledger technology.

Source: EQM Indexes

Bitcoin – Digital Gold

That is not to say that it has not been an important time for cryptocurrency as well. Bitcoin (BTC) was the best performing asset of 2019 – up more than 90% and this so-called “digital gold” has risen 9,000,000% over the last decade.

Even in the wake of COVID-19, it remains the best performing asset class of this year, beating Treasuries and gold, teetering around the $10,000 level.

Image

Source: Thomas Lee, @fundstrat on Twitter, as of May 8th, 2020.

Many were anticipating that the $BTC halving would drive up prices further. And famous investor Paul Tudor Jones II gave Bitcoin an important stamp of approval, describing it as a “hedge” against a new era of inflation.

But while bitcoin needs blockchain, blockchain doesn’t need bitcoin. There are important applications of blockchain in the COVID-19 world facilitating contactless payment, supply chain management, and many important healthcare applications.

Blockchain Usecase #1: Contactless Payment

Early in March, WHO warned that banknotes may spread the virus and recommended “contactless” forms of payment. This is not the first time people have questioned the cleanliness of payment. Ironically, a year ago the financial education website LendEDU published its “germ score” data demonstrating that money is “pretty dirty”.

Source: Huffington Post, as of 5/21/2019

The U.S. is behind in the area of contactless payment. According to Visa, 48% of its in-person transactions (excluding the U.S.) are contactless. That includes more than 90% of the transactions in Australia and more than 50% in the U.K. and Canada. By contrast, less than 0.25% of POS transactions in the U.S. were contactless.

Contactless payment drives the need for more fraud protection. Blockchain distributed ledger technology can track assets and payments securely. “Tap and Go” wallets like Apple and Google Pay do not even require a PIN. This could spur the growth of more secure, peer-to-peer, contactless payment solutions that use methods such as authentication, monitoring, and data encryption.

PREDICTION: In the “new normal” of digital post COVID-19, cash and checks will be replaced by digital payment systems and new, more secure, digital currencies.

Blockchain Usecase #2: Supply Chain Management

Clearly, the COVID-19 pandemic has revealed some major issues with the global supply chain. From ventilators, PPE, to toilet paper and wipes, many items were “lost” or unable to be sourced in the supply chain. All of this makes a compelling case for the wider integration of the blockchain. To quote the World Economic Forum COVID Action Platform, “The COVID-19 crisis has revealed a general lack of connectivity and data exchange built into our global supply chains. Future resiliency will depend on building transparent, interoperable and connective networks.” If there were any lingering doubts about the value of blockchain to improve the transparency of business that depend on the seamless integration of across different networks, COVID-19 has wiped them away. From a national security perspective,

We cannot afford to continue operating in the dark.

—Mariam Obaid Al Muhairi, Project Manager at the Dubai Future Foundation

In response to the challenges created by COVID-19, the World Economic Forum has created a “Redesigning Trust: Blockchain Deployment Kit” to guide organizations through the development and deployment of blockchain solutions with a focus on the supply chain.

PREDICTION: In the “new normal” of digital post COVID-19, blockchain will be an important tool in modernizing the supply chain of the future.

Blockchain Usecase #3: Healthcare Applications

Medical Supply Chain

The blockchain offers important solutions for the medical supply chain as well. IBM (IBM) has created a blockchain solution using its Hyperledger Fabric platform to help connect buyers with non-traditional suppliers of items in the medical supply chain such as masks and other PPE needed to combat COVID-19. The solution, called Rapid Supplier Connect, launched on April 27th to help government agencies and healthcare organizations to source this vital equipment.

Testing and Contact Tracing

The blockchain can also be used in the testing and contact tracing of patients. Due to the inherent transparency of the technology, medical providers can guarantee that all patients’ health records were “tamper proof” while also ensuring the data’s privacy in compliance with medical privacy codes such as HIPAA and GDPR.

Medical Research

It takes vast amounts of raw processing power to run protein fold simulations that researchers use to look for vaccines and therapies – distributed computing power can help. A series of ongoing efforts across universities, medical academia, the private sector and even private citizens are harnessing distributed systems in the fight against COVID-19.

PREDICTION: In the “new normal” of digital post COVID-19, blockchain will be an important tool used in healthcare to help source supplies, facilitate the anonymous testing and tracking of COVID-19 patients, and help with the medical research targeting an end to the virus.

How to Invest in Blockchain

Blockchain is a nascent investment theme with very few individual companies offering “pure play” exposure. Furthermore, many of the “pure play”, defined as companies generating more than half their revenues from blockchain applications such as crypto mining and exchanges, are foreign local shares and/or speculative companies from a risk perspective. As a result, we think the best method to obtain exposure to blockchain is via a diversified exchange-traded product.

Here is a comparison of the products available in the U.S. By way of disclosure, EQM Indexes helped developed the EQM-Emerita Blockchain BLOK 50 Global Index (BLOK-50) which is tracked by the actively managed Amplify Transformational Data Sharing ETF (BLOK). It should also be noted that none of these ETFs are clearly recognizable as “blockchain” ETFs given that regulators would not allow the word “blockchain” in their fund name.

ETF Name

Ticker

AUM $ USD

Investment

Style

Expense Ratio

YTD Performance%

Amplify Transformational Data Sharing ETF

(BLOK)

$83 million

Active

0.70%

-1.49%

Reality Shares NASDAQ NexGen Economy ETF

(BLCN)

$55 million

Passive

0.68%

-2.77%

First Trust Indxx Innovative Transaction & Process ETF

(LEGR)

$36 million

Passive

0.65%

-17.74%

Innovation Shares NextGen Protocol ETF

(KOIN)

$8 million

Passive

0.65%

-5.35%

Source: Bloomberg, as of 5/15/2020

The actively managed ETF BLOK has been the best performer YTD, in part because it is the most correlated with cryptocurrency with top holdings such as GMO Internet, Digital Garage and Galaxy Digital Holdings. This targeted exposure has helped dampen market volatility in the COVID-19 market environment.

Conclusion

Blockchain technology will be an important beneficiary of the COVID-19 pandemic environment. It may not be as obvious as “stay at home” and “work from home” investment themes, but offers important solutions for payment, supply chain management, and healthcare. While the dynamics for growth for blockchain were already in place, this is a prime example of another disruptive technology, similar to ecommerce retail, cloud, and robotics, whose growth and adoption will be accelerated by the pandemic.

Disclosure: I am/we are long BLOK. Business relationship disclosure: EQM Indexes is one of the research partners in the Amplify Transformational Data Sharing ETF (BLOK) and the co-developer of the EQM-Emerita Blockchain BLOK 50 Global Index (BLOK-50). It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. EQM Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. EQM Indexes makes no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. EQM Indexes is not an investment advisor, and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth on this website. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by EQM Indexes to buy, sell, or hold such security, nor is it considered to be investment advice. The author owns shares in BLOK.



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