I get asked about cryptocurrency a lot. From a compliance standpoint, I’m not able to provide specific investment recommendations on cryptocurrency. But I do think I can offer some insight into why people are so captivated by it. Specifically, I believe much of the enthusiasm around Bitcoin isn’t just about digital currency – it’s about blockchain technology and all the possibilities it presents.
But what exactly is blockchain?
At its core, blockchain is a type of database – a digital ledger that records transactions in a secure and decentralized manner. Unlike traditional databases, which are controlled by a single entity, blockchain is distributed across a network of computers. Each transaction is verified by multiple participants (or nodes) in the network before being added as a new “block” in a continuous chain of data. This makes it nearly impossible to alter past records, providing security and transparency. Because of these properties, blockchain has the potential to revolutionize industries far beyond finance.
Here are some of the ways blockchain could reshape different sectors:
- Secure Medical Records – Patient data could be stored on a decentralized ledger, ensuring privacy and security while allowing seamless access for authorized healthcare providers.
- Data Control – Individuals could own and control their personal data rather than relying on centralized entities that monetize it.
- Safe Transactions – Blockchain enables transparent, tamper-proof transactions across industries like supply chain logistics, real estate, and intellectual property.
- Voting Systems – Election integrity could be significantly improved through decentralized, verifiable voting mechanisms.
People love these ideas. They recognize the game-changing potential of blockchain. But there’s a problem:
There’s no easy way to invest in “blockchain” itself.
Sure, there are companies working on blockchain applications, but no single investment truly captures the broad potential of the technology. So what do investors do when they want exposure to blockchain? They buy Bitcoin – because it’s the most visible and accessible application of blockchain, even if it only represents a fraction of what the technology can do.
This reminds me of a pattern I’ve noticed in another investment dynamic:
SpaceX is to Tesla as Blockchain is to Bitcoin: A Hypothetical Comparison
Elon Musk’s private space exploration company, SpaceX, has captivated investors and technology enthusiasts alike. It has achieved remarkable feats – reusable rockets, commercial space travel, and even aspirations for Mars colonization. The problem? It’s a private company – you can’t just buy shares in SpaceX on the stock market.
However, there is a publicly traded company that shares a deep connection with SpaceX: Tesla.
Tesla and SpaceX share leadership, innovation-driven cultures, and a common fanbase of believers in Musk’s vision. Over the years, when SpaceX has announced major milestones – like landing reusable rockets, securing massive funding rounds, or winning government contracts – Tesla’s stock has often reacted positively. Investors, lacking direct access to SpaceX, turn to the closest publicly available proxy: Tesla.
The same pattern seems to exist with blockchain and Bitcoin.
Blockchain is an extraordinary technology that could change industries, but there isn’t an obvious way to invest in it directly. So what do investors do? They buy Bitcoin, the best-known blockchain-based asset.
Examples of This Possible Proxy Effect in Action
Tesla Reacting to SpaceX News
- In 2020, when SpaceX completed a successful crewed mission to the International Space Station, Tesla stock surged in the following weeks. 1
- In 2023, when SpaceX was reportedly raising money at a $137 billion valuation, Tesla stock saw positive movement, even though the companies operate in different industries. 2
Bitcoin Reacting to Blockchain Developments
- When China’s government announced research into blockchain technology (even while banning crypto trading), Bitcoin saw a rally. 3
- When major companies like Visa, JPMorgan, and IBM have made blockchain-related announcements, the crypto market has often responded with upward momentum. 4
Final Thoughts
This is just a theory, but it may help explain why Bitcoin often moves in response to blockchain-related news, much like Tesla has reacted to SpaceX developments. Investors love the idea of blockchain, just like they love the idea of SpaceX. But when direct investment isn’t an option, they turn to the next best thing. This is what we are calling the “investment proxy effect.”
That’s why we seem to see Bitcoin often move on news related to blockchain, just like Tesla has historically reacted to major SpaceX developments. Does that mean Bitcoin is the best way to invest in blockchain? Not necessarily. But it may explain why people flock to it.
- https://electrek.co/2020/06/01/tesla-tsla-soars-market-spacexs-succes-credibility-boost-elon-musk/?utm_source=chatgpt.com
- https://www.forbes.com/sites/qai/2023/01/03/elon-musks-spacex-valued-at-137-billion-in-latest-funding-round/?utm_source=chatgpt.com
- https://www.weforum.org/stories/2022/01/what-s-behind-china-s-cryptocurrency-ban/?utm_source=chatgpt.com
- https://www.darkreading.com/cloud-security/banks-start-broad-use-of-blockchain-as-jp-morgan-ibm-lead-way?utm_source=chatgpt.com
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