Unlocking the blockchain ecosystem

Cryptocurrency has the potential to revolutionize how we think about money. Like many other potentially industry-changing technologies, though, crypto has experienced some bumps along the way. For many long-term investors in cryptocurrencies, price volatility is simply the price of admission. However, investors have other ways to participate in the ecosystem that powers Bitcoin, Ethereum, and many other cryptocurrencies.

While crypto prices dominate the headlines, blockchain technology — which underpins cryptocurrencies and other applications across a wide range of industries—may be an interesting and attractive space for investors.

Investing in crypto vs. the blockchain

Most investors at some point or another have probably seen quotes for Bitcoin and other cryptocurrencies flash across their screens. They may be less familiar with blockchain technology, the code and systems that power cryptocurrencies and other applications. Many innovative companies are using blockchain to change how data is stored and how transactions are verified.

A blockchain is a decentralized database that stores information and transactions digitally in a peer-to-peer network. Cryptocurrencies like Bitcoin are made possible by blockchains, which create a secure, decentralized ledger of transactions. This system removes the need for intermediaries, such as banks or central clearinghouses, to validate or process exchanges.1

Many industries are adopting technology to streamline their operations and manage data and supply chains. Sectors that are modernizing their operations with blockchain technology include healthcare, manufacturing, and financial companies.2

As adoption increases, the blockchain market appears poised for growth. The global blockchain technology market size was estimated to be around $4.8 billion in 2021 and is expected to reach $69 billion by 2030, representing a projected compound annual growth rate of roughly 68% between 2022 and 2030.3

Companies have also invested in driving innovations in blockchain technology. As of October 2023, the U.S. Patent and Trademark Office (USPTO) recorded 13,854 blockchain patent applications, with 9,442 patents granted.4 This suggests that more breakthroughs in blockchain technology may be on the horizon, particularly as patent applications in the space continue to grow.

Breaking down the crypto and blockchain ecosystem

The crypto and blockchain ecosystem includes crypto miners, exchanges, investors, merchants and cybersecurity firms. The Nasdaq-100® Index, which Invesco QQQ tracks, contains many companies that are helping build and transform the blockchain ecosystem. All of the companies mentioned below are currently held in QQQ.

Semiconductor companies — Just like in the California Gold Rush, the suppliers of “pick and shovels” to miners have the potential to build lasting profits. Semiconductor giant Nvidia is the leader in providing graphics processing units (GPUs) and specialized hardware for crypto mining. Advanced Micro Devices, another QQQ holding, is active in blockchain technology and produces the high-octane processing units used by many crypto miners. Chipmaker Intel also produces hardware to help power blockchain networks.

Payment processors — PayPal, the provider of electronic transactions for merchants and consumers, allows its customers to trade several cryptocurrencies, and also enables payments in crypto. PayPal, which has more than 400 million users, is a good example of a more traditional financial company getting involved in the crypto ecosystem.

Modern registry, retailers, and manufacturers — Honeywell International is using blockchain to digitize airplane records and parts.5 Retail juggernaut Amazon offers Amazon Managed Blockchain, which is designed to help users create scalable blockchain networks. Tesla CEO Elon Musk has been a vocal supporter of cryptocurrencies, and the company holds Bitcoin on its balance sheet.6

Web3 and the metaverse — Many QQQ companies are at the forefront of building the metaverse and all the potential applications of blockchain and crypto. The many companies that fall into this category include Alphabet (Google’s parent), Meta Platforms (Facebook’s parent), and Microsoft.

A continuing story

It’s safe to say we are still in the early stages of crypto and blockchain, and the list above only scratches the surface of the companies involved in this transformation. It’s going to be challenging to pick the winners among individual cryptocurrencies and individual companies involved in blockchain. QQQ may allow you to potentially benefit from the innovation that blockchain brings to the world, while also providing access to many other industry-leading innovators in one holding.