In today’s changing world, it’s important for advisers and paraplanners to understand the developments in global transactions and how Blockchain underpins the processes. Peter Schwabach (pictured above) of Shield Investment Management shares the thinking behind the launch of a new fund which has been designed to capture the benefits of this powerful driving force
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One thing all of us can finally agree on (governments, banks, industry, commerce and investors alike) is that Blockchain is here to stay and will play an increasingly important part in the structuring, recording and validation of global transactions– whether goods, services, land titles or even votes.
An indelible, incorruptible, permanent and de-centralised register of historical transactions held on hundreds of thousands of computers globally is a key development in making the world a more transparent place, whilst at the same time reducing the fraud and tampering of records that has eroded trust and value in almost every industry, government and institution.
The investment question
The challenge for investors now is how best to capitalise on this seismic technological change.
Much of the world’s attention has focused on the units of value (the crypto-currencies and tokens) that are transferred daily between counter-parties across the Blockchain (currently over 2 million transactions per day).
By analogy, these units are the equivalent of the rolling stock of the railways in the 19th century, each delivering a different product or service from A to B and C to D – depending on its payload. Think passenger carriages for people, tanker carriages for liquids, cattle carriages for live-stock etc, etc. In Blockchain, each coin is similarly designed to deliver a different product or service for the end user, the current range of 1,700 coins reflecting the rapid growth and specialisation of the market.
For investors this explosion in coin issuance is bewildering. Whilst many are purchased and used for their intended purpose and then converted back to hard currency (post transaction), many more are held speculatively as an alternative store of wealth in the expectation that they will rise in value as they do not deliver interest or dividends
Routes to market
Another investor route to market is through ownership of shares in the companies that manufacture the hardware and software supporting Blockchain (ie the powerful engines pulling the railway carriages across the railway network). Nvidia, for example, the world’s largest manufacturer of the Graphic Processing Units that power much of the Blockchain, has seen its share price rise 80% in the last 12 months to a heady valuation of $160bn at the time of writing in June 2018.
At the same time, the race is on for other CPU and GPU manufacturers to develop more powerful, lower cost and lower energy intensive processing units. Pure play Blockchain Chinese CPU manufacturer Bitmain recently received a $400m venture capital investment giving the company a pre-IPO valuation of $12bn, but others are in the wings rapidly developing products to meet rising demand. Who will dominate this market is still an open question.
One other route to market is ownership of the shares in the software engineering companies that are designing ever more powerful commercial and industrial applications for Blockchain. Included in this race are not only big names such as Microsoft and IBM, the big 4 global accounting firms, but also thousands of start ups each with a product that may or may not transform the market.
Like the market for new coins – which of the individual software companies to back is a very difficult judgement call for investors.
An alternative approach
What then is the pure-play Blockchain investment that captures the rising value and growth of the market but without the risk and volatility of ownership of a specific currency, or shares in a single hard ware or soft ware developer?
At Shield Investment Management, Global investors in technology, our considered assessment is that it is the ownership of the Blockchain infrastructure itself, the millions of super-computers that record and validate transactions globally 24/7, and which generate daily fees for the services provided that offers the most attractive approach for investors.
Using the railway analogy, ownership of the Blockchain infrastructure is ownership of the railway tracks themselves, investors receiving a transactional fee for each payload that passes across their tracks in the very denomination of that pay load. Rather than receiving barrels of pork, bales of cotton, or heads of cattle as 19th century railway owners would have done, the infrastructure providers receives a small percentage of each currency transacted. These are then re-converted by Shield to £ on a daily basis,
Operating 24/7, these super-computers generate consistent and attractive returns for investors who benefit from the growth in the entire market.
INVESTING IN BLOCKCHAIN INFRASTRUCTURE
Shield Investment Management,’s strategy is therefore to invest directly in the global data centres that generate daily revenues from Blockchain transactions. To facilitate this Shield is launching a fund with a target size of $50m
At Shield, our experienced investment managers are not only specialists in Blockchain technology but have a particularly strong track record in technology infrastructure, logistics and renewable energy infrastructure.
This is particularly relevant as renewable energy (particularly Hydro) is the most cost efficient and responsible source of energy for data centres which we always locate near the energy source and in temperatures that are optimal for data processing.
For more information please email ps@shieldim.com, or visit www.shieldim.com
