Investing in Digital Currencies Affects Stocks, Central Banks and Nations

Paul Dykewicz

Investing in digital currencies could lead to big changes for many stocks, financial institutions, central banks and countries.

Interest in investing in digital currencies is growing well beyond Bitcoin and other cryptocurrencies. So far, Europe and China seem to be global frontrunners in exploring the launch of Central Bank Digital Currencies (CBDCs).

While electronic payments typically use commercial banks, adoption of CBDCs could trim the role of traditional financial institutions. CBDCs may become an anti-cryptocurrency alternative as central banks seek to ensure payments go through a regulated, transparent, cheap, convenient and easy-to-use process.

Investing in Digital Currencies Gains Interest in Europe

Geopolitics and years of the European Union trailing the United States in technological advancement may have pushed the European Central Bank (ECB) to move more quickly than the Fed and most other major central banks in introducing a CBDC. While a full-fledged CDBC is still years off, even in the eurozone, implications for banks and payment networks are critical to understand as the ECB indicates that change is likely coming and may begin with a trial of CBDCs by mid-2021, according to a recent podcast by BoA Global Research.

“Central banks worry about losing their monopoly of money,” said Philip Middleton, a specialty finance equity research analyst with BoA Global Research. “They worry about private sector stable coins. Diem… formerly known as Libra, is the obvious example here. And they’re worried that other economies could use a digital currency, and this becomes broadly used. The Bahamas already has a digital currency, the Sand Dollar, but I suspect the ECB is more concerned about China, which has already completed a CBDC trial and is supposedly quite a long way along this process.”

Only banks can take deposits, said Alastair Ryan, BoA’s head of European banks equity research. With the technology advances of the past five, 10 and 15 years, everybody’s deposits are still with one of the banks, but a digital currency could potentially change that, he added.

Investing in Digital Currencies Could Become Huge in Europe

“There’s about €10 trillion of deposits in Europe,” said Ryan. “Back before the financial crisis, the ECB had a balance sheet of €1 trillion, but with all the interventions of the last few years, it was close to €4 trillion just over a year ago. Now, it’s close to €7 trillion. The ECB’s got used to dealing with very large numbers and been very central to an awful lot of what’s going on in the economy in a way that just wasn’t the case 10 years ago. If they take everybody’s salary and end up with that, with them in a digital euro, that’s about a trillion euros.”

Central bank digital currency could be quite disruptive both to the banks and the payments networks, said TJ Thornton, head of product marketing and predictive analytics at BoA Global Research. The ECB will start a trial of CBDCs sooner or later, he predicted.

However, CBDCs likely are years away, even in Europe, so the biggest ramifications are for “fringe currency speculators,” said Hilary Kramer, who hosts the nationally aired “Millionaire Maker” radio program and heads the GameChangers and Value Authority advisory services.

“I’d consider focusing on opportunities with commercial applications closer to the here and now,” Kramer said. “Look at the way payment flows are shifting toward captive electronic networks.”

Paul Dykewicz conducts a pre-COVID-19 interview with Hilary Kramer, whose premium advisory services include IPO Edge2-Day TraderTurbo Trader and Inner Circle.

Investing in Digital Currencies Could Boost Appeal of Square and PayPal

Kramer cited two stocks that could capitalize on the trend. One is Square Inc. (NASDAQ:SQ), an online payment company that finally has regulatory clearance to operate as a bank to “squeeze every micro-cent” out of $112 billion in transactions that its system facilitated last year, Kramer added.

“The company already has 3 million active customers buying and selling with Bitcoin,” Kramer said.

Chart courtesy of www.stockcharts.com

A second stock that should benefit is PayPal Holdings Inc. (NASDAQ:PYPL), another online transaction provider that now supports Bitcoin, Kramer said. Square and PayPal both collect money on cryptocurrency transactions.

Chart courtesy of www.stockcharts.com

“Lock that in and then raise your gaze toward prospects farther out on the timeline,” said Kramer, who added she has been more interested in the blockchain technology that makes bitcoin and other cryptocurrencies possible. The systems behind them are changing the world, she added.

Investing in Digital Currencies Has Produced 1,047% Return in Silvergate

For investors seeking to profit from cryptocurrency intersecting with the conventional economy, Kramer cited her success with recommending Silvergate Capital Corp. (NYSE:SI), a so-called “crypto bank” that accepts deposits in digital currency and is now rolling out dollar lending using crypto assets as collateral.

Chart courtesy of www.stockcharts.com

“It felt great to get SI in front of my IPO Edge subscribers a little over a year ago at $12.50,” Kramer said. “You can see for yourself where it’s gone since.”

Silvergate Capital closed trading at $143.32 on Tuesday, March 3. That marks a 1,046.6% increase since April 2020.

Source: Stock Rover. Click here to sign up for a free, two-week trial for Stock Rover charts and analytics.

Stock Picker Woods Forecasts Worldwide Investing in Digital Currencies

“I don’t think investors should be concerned by the adoption of CBDCs in Europe,” said Jim Woods, editor of Successful Investing, Intelligence Report and Bullseye Stock Trader, as well as co-editor of Fast Money Alert, who recently posted a free, online presentation about how to profit from cryptocurrencies. “The adoption of a digital currency by the ECB, Bank of England, and frankly also in the United States, is something I see as inevitable.”

Woods is a fan of cryptocurrencies as an alternative to government control of fiat money. But rather than investing in only Bitcoin or individual cryptocurrencies, he said companies in the blockchain space, as well as the “picks-and-shovels” plays in stocks related to cryptocurrencies, are the better way to go.

Columnist and Author Paul Dykewicz Meets with Stock Picker Jim Woods before COVID-19.

Woods continued that unlike in 2017, when the rise and fall of Bitcoin and the other cryptos was driven by individual investors, the new wave has three big forces behind it:

  1. A massive influx of large-scale investors and institutions
  2. Investors seeking a hedge against inflation
  3. Growing acceptance by retailers, grocery stores and other businesses

Big Financial Institutions Commit to Investing in Digital Currencies

Plus, institutions collectively are committing big money. They include JPMorgan creating a JPM Coin to settle payments between clients. This is going to transform the payments business, Woods predicted.

In addition, the New York Stock Exchange’s parent company, International Exchange, has hopped on the movement by launching a Bitcoin firm and futures contracts, Woods continued.

The Chicago Mercantile Exchange, known for trading agricultural products, currencies, metals and stock indexes, has created four trading platforms for bitcoin futures and options on futures, Woods added.

Also consider Fidelity Investments, a giant mutual fund company, forming Fidelity Digital Assets for institutional companies to buy, hold and trade cryptocurrencies.

Cryptocurrencies allow for borderless payments, lower fees and faster, more secure transactions.

Investing in Digital Currencies Already is Surging, According to Report

National currencies may break from their current physical form and become digitized. Cointelegraph reported:

  1. 36% of 800 institutional investors already owned crypto assets as of February 2020.
  2. 90% of institutional holders of crypto assets expect to invest even more in bitcoin this coming year.

Bitcoin and the other cryptocurrencies offer bankers, institutions and investors decentralized finance, also called DEFI. Digital currencies can change the dynamics of money, since no nation or central bank controls the assets.

China May Lead Surge of Investing in Digital Currencies

Investors need to watch China more than Europe as digital currencies begin to be offered by central banks, said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. China effectively has banned Bitcoin and other private digital currencies, he added.

“Instead, it developed a digital form of its own currency and is testing it in several cities,” Carlson said. “China also recently reached an agreement with several other countries to test using the digital Chinese currency as a means of transfer and payment. China is well ahead of other governments in establishing a digital currency and aims to use it to replace the dollar as the world’s reserve currency.

“Investors also need to be more focused on the blockchain that underlies Bitcoin and its imitators more than on the currencies themselves. Advocates of blockchain technology believe that over time it will be able to replace credit cards, banks and much of the current financial system. It remains to be seen if that will happen or how long it will take, but investors need to monitor it. Major financial services and technology companies established small blockchain departments but are prepared to pour additional resources into them if breakthroughs are achieved.”

Pension fund and Retirement Watch leader Bob Carlson answers questions from Paul Dykewicz prior to COVID-19-related social distancing.

Investing in Digital Currencies Grows Amid COVID-19 Crisis

COVID-19 killed more than 100,000 people in America during January 2021 to amass the biggest death total of any month since the virus began spreading in the United States, but the pace eased in February as vaccine rollout gained momentum, according to Johns Hopkins University. The Food and Drug Administration (FDA) recently approved a third COVID-19 vaccine to lift hope that a semblance of normalcy may return later in 2021 if the virus can be curtailed.

COVID-19 cases have hit heart-wrenching totals with their number soaring to 28,718,025 and causing 516,476 deaths in the United States, as a huge chunk of 114,749,889 cases and 2,549,111 deaths worldwide, as of March 3, Johns Hopkins University reported. America has the dubious distinction as the nation with the most cases and deaths.

Investing in digital currencies is gaining worldwide interest, especially with the price of Bitcoin now near $50,000. Investors soon may have an expanded number of ways for investing in digital currencies that could include CBDCs from Europe, China and elsewhere.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.

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