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The Backdoor Way to Play the Cryptocurrency Boom

Nvidia’s GeForce GTX 1080 Ti retails for $699. But if you want one right now, you’ll have to pay $1,200 on Amazon.

AMD’s Radeon RX Vega 56 retails for $400. But if you want one right now, you’ll have to pay over $800 on Best Buy’s website.

The GeForce GTX 1080 Ti and Radeon RX Vega 56 are graphics processing units (GPUs).

GPUs are computer chips that create images, animations, and videos on computer, television, and mobile device screens. They’re common in video game consoles.

But gamers aren’t causing the markup for the GeForce GTX 1080 Ti and Radeon RX Vega 56.

The new demand is coming from cryptocurrency miners. And the competition between the two groups is fierce.

According to Tom’s Hardware, an independent product review service:

The sudden increase in cryptocurrency mining has pushed the price of graphics cards through the roof. Popular favorites of cryptocurrency miners have all doubled if not tripled in price—and that’s just when you can actually find them in stock at all.

When there’s a large imbalance in the market like we’re seeing with GPUs, we take notice here at the Daily. These types of shortages often lead to profit opportunities.

And today’s opportunity is in the semiconductor industry. It’s a stealth “backdoor” way to potentially profit from cryptocurrency’s Second Boom…

Another Tailwind for Semiconductor Companies

Semiconductor companies make microchips. The chips are like the “brains” of electronic devices.

Regular readers know we’re big fans of this industry.

You see, these chips go into all types of electronic devices—from computers, to smartphones, to garage door openers.

And according to market forecasts, there will be over 75 billion smart devices by 2025. (That’s up from just 8.4 billion connected devices used in 2017.)

That averages out to more than 12 devices per man, woman, and child across the globe.

That’s a huge tailwind.

But now, semiconductors are getting another tailwind. This time, it’s from cryptocurrency miners…

Competition for Chips

GPUs are powerful processors. That’s why gamers like them. They render complex images quickly on screen.

Cryptocurrency miners like GPUs for similar reasons.

Mining is a complex process… So, I’ll just go over the basics here.

Miners are developers who keep blockchain networks running. They use powerful computers to validate cryptocurrency transactions (Blockchains are online distributed ledgers.)

The miner who validates a transaction first receives a reward in cryptocurrency.

Mining fees can be very lucrative. For instance, the miner who solves a bitcoin transaction first receives a reward of 12.5 bitcoin (at today’s prices, that’s about $114,625).

But mining cryptos uses a lot of processing power. According to one estimate, a single bitcoin transaction uses enough energy to power 26 U.S. households for a day.

That’s why miners are snapping up super-fast GPUs like the GeForce GTX 1080 Ti and Radeon RX Vega 56. They use them in their powerful computer rigs to help validate transactions.

Now, crypto mining is a relatively new phenomenon. So, there aren’t many figures out there on exactly how many miners there are. (We’ve seen estimates range from as low as 5,000 to as high as 500,000.)

What we do know is that the cryptocurrency market is exploding. Since 2015, the market cap has grown from $4 billion to $375 billion—a 9,275% rise.

And the transaction volume is up even more.

But now, the cryptocurrency market is about to enter a second phase. And this will be bullish for semiconductor companies…

The Second Boom

A new wave of money is about to hit the cryptocurrency/blockchain space this year.

Palm Beach Confidential editor and world-renowned cryptocurrency expert Teeka Tiwari told me recently that this flood of money will come from institutions. He calls it the Second Boom:

Last year, according to investment analytical firm PitchBook, there were 377 deals done in the blockchain space. Already in the first two months of 2018, there were 138 completed deals. That means we’re on pace to see about 800 deals this year—more than double the amount of deals from last year.

This is going to lead to an absolute explosion in the technology.

Teeka told me the Second Boom could unlock $5 trillion of new money into the crypto market.

That’s more than 10 times the current market cap of the entire cryptocurrency market. And as more people enter crypto mining, we’ll see GPU growth explode to meet the new demand.

The best way to play the Second Boom is to follow Teeka’s advice and buy a select group of cryptocurrencies. But I realize that cryptos aren’t for everyone. They’re difficult to buy and are super volatile.

A less volatile way to add this trend in your stock portfolio is to buy the VanEck Vectors Semiconductor ETF (SMH).

The fund holds the world’s largest GPU companies, including Nvidia (NVDA), Advanced Micro Devices (AMD), and Intel (INTC), which is rumored to be entering the GPU market soon.

If you want a safe, backdoor way to play the Second Boom in cryptocurrency, you should consider buying SMH today.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

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