Ten years ago I don't know how seriously I would have taken the Bitcoin (BITCN) phenomenon.
Today though, I'm taking it very seriously.
I've learned my lesson the hard way. I've always missed the boat as early adopters got ahead of the curve.
In the mid-nineties I paid very little attention to the developments surrounding the internet. My parents did the same thing with personal computers in the 1970s.
So with Bitcoin I've been paying attention, and what I've learned is that there is real merit to this digital currency.
The Advantages Of Bitcoin
The whole concept of Bitcoin is a bit abstract for the level at which my brain operates.
The part that I am able to grasp is that there are enormous financial forces that may very well lead to Bitcoin's adoption.
What I'm referring to is that fact that merchants are going to be very, very motivated to want Bitcoin to succeed.
The first big advantage that Bitcoin provides over current electronic transactions is that Bitcoin transactions involve no fees.
When I first read that I didn't think that was a big deal. Transaction fees are annoying, but they don't amount to much.
Then I read this Seeking Alpha article from technology venture capitalist Marc Andreessen which provided me with an entirely different perspective.
Andreessen provided the proper context for how significant transaction fees are on the merchant end of a transaction.
After reading Andreessen's article I dug out some statistics on typical profit margins for retailers.
It turns out in the retail business profit margins are pretty thin. Even for an online retailer price competition keeps margins thin.
A typical retailer might have a pre-tax profit margin of 5%. That is pretty thin. On top of that, for an online transaction a credit card company is going to take another 2 to 3% for a transaction fee.
Those transaction fees do huge damage to the retailer's bottom line. The business only has a 5% margin to begin with, and then that gets cut in half again by the transaction fees.
The transaction fees cut profit margins in half.
That is a shockingly big impact and it is not hard to see why a merchant would be eager to adopt a system like Bitcoin that eliminates them.
Advantage number two is that using Bitcoin completely eliminates credit card fraud.
According to a 2009 study by Lexis Nexis, merchants in the United States lose $190 billion per year to credit card fraud.
The perfect example of how big a problem this is happened recently to Target (NYSE:TGT). Target had a massive data breach which involved credit card information being stolen and up to 15% of the cards being subjected to fraudulent activity.
Estimates are that this one incident will cost Target $1 billion.
Do you think Target might be interested in a currency system that would eliminate such risks?
And merchants don't just suffer from the cost of fraud itself, there is also the cost and massive headaches of trying to prevent it from happening in the first place.
For merchants, widespread acceptance of Bitcoin would be a tremendous financial blessing. It could save companies hundreds of billions of dollars.
That is a powerful force that could drive through acceptance of Bitcoin.
An Introduction To Public Companies That Are Pure Plays On Bitcoin Acceptance
Speculating on the price of Bitcoin is not what I'm interested in. What I'm looking for are companies that are going to grow exponentially if Bitcoin acceptance grows and transaction volumes increases.
I've found a few companies that offer this exposure.
Please be aware that all of these companies are small and have very high risk profiles.
I don't provide this list as an investment recommendation but rather a starting point to help monitor how early stage Bitcoin companies progress. At this stage of what may or may not be a Bitcoin revolution, the first thing we need to do is get the appropriate companies on our radar.
Bitcoin Shop Inc (TUCND) - Bitcoin Shop Inc was founded in 2013 by two gentlemen who at the time worked for NASA. Bitcoin Shop is basically the Amazon.com for Bitcoin and is a place where consumers can spend their goods and services on real goods.
The e-commerce website for the company already offers over 100,000 different products for sale.
Bitcoin Shop serves as a medium between consumers wishing to spend Bitcoin and sellers wishing to receive sales driven by Bitcoin.
The two NASA founders of Bitcoin Shop developed core technology that allows it to interface with vendors in order to display up-to-date inventory, and present prices in Bitcoin according to the Bitcoin Best Bid (BBB) exchange rate from US Dollars, updated every 15 minutes.
Bit Coin Shop was previously featured on Seeking Alpha here.
The Cryptocafe.com website (according to Myriad) will enhance the Bitcoin community. How exactly it will do that is a mystery. All investors really have to go on are these details released by the company:
"Our project is not just related to Bitcoin, but other crypto-currencies as well like Litecoin. We have been involved in the world of Bitcoin for the last year, and we are really excited about having the opportunity to bring forward a platform that could introduce the world of crypto-currencies to a much larger audience, on a worldwide scale."
"Right now it's difficult for many citizens around the world to process modern currencies. Many face limits and restrictions with traditional service providers like Western Union and PayPal, and then there are some who may not be able to use services like PayPal at all. Crypto-currencies offer a seamless alternative with much lower transaction fees, and no middle man. Today's mobile phone culture allows just about anyone with a Smartphone the opportunity to house a digital wallet and spend crypto-currencies like Bitcoin straight from their phone."
SmartMetric is a developer of patented payment card technologies and in-card biometric products.
What the company offers Bitcoin users is the world's first biometric, fingerprint secured, off-line storage platform for bitcoins.
The SmartMetric biometric Bitcoin card has an internal ARM 9 processor along with its own computer operating system for stand alone on-card processing. It comes standard with 8GB of memory with the ability to release cards with up to 128 GB of memory. Also within the card is a miniature power management system that handles the re-charging of the card's internal battery.
On the surface of the card is a miniature fingerprint reading sensor along with a banking standard EMV chip that is connected to the cards internal motherboard. The card can also come with a standard banking NFC chip. Both the EMV chip and NFC chip are in an off state and are turned on for functioning following a match made with the card owners fingerprint.
WPCS International Inc (NASDAQ:WPCS) - WPCS 's goal is to eliminate one of the current major disadvantages of Bitcoins which is that accessing the Bitcoin market is a painful process for most investors.
Currently to set up an account at one of the dozens of existing Bitcoin exchanges requires the completion of lengthy application forms and often having an offshore account.
That turns off a large percentage of potential Bitcoin users and completely eliminates others.
WPCS is going to improve on this by rolling out BTXtrader.com which offers U.S. citizens easy access to the complicated world of Bitcoin trading.
BTX Trader operates (and looks) like a traditional equity trading platform. It is complete with real-time quotes of bitcoins across the world.
Importantly it allows users to route buy and sell orders across five of the largest bitcoin exchanges including the largest exchange, Mt. Gox.
The five largest bitcoin exchanges -- Mt. Gox, BTCChina, Bitstamp, BTC-E and CampBX -- handle 90% of the world's bitcoin transactions. There are currently no major multi-exchange bitcoin trading platforms which means that BTXtrader is a first mover in the industry.
Further differentiating what BTX Trader has to offer is that it provides limit and stop limit orders which are not currently available on any of the five major bitcoin exchanges.
Like any trading platform, profitability for BTX Trader will be driven by volumes.
WPCS has been featured SIX times previously on Seeking Alpha.
Action For Investors To Take
What investors shouldn't do is speculate on the price of Bitcoin. My investment recommendation isn't to be bullish on the Bitcoin price but rather the level of acceptance that Bitcoin has.
A growing level of acceptance will drive transaction volume. Transaction volume will drive revenues and income for the companies listed above as well as others.
What I am recommending is setting aside an amount of cash that is equal to what one full portfolio position might be. Then split that cash into twenty smaller amounts.
Those smaller amounts would then be used to build a basket of Bitcoin focused companies. This would be like a venture capital approach where you spread your bets. With venture capital investing investors know that their portfolio will include some big losers, but that one big winner will more than make up for it.
These Bitcoin companies like Bitcoin itself are likely going to have binary outcomes. The results will either be something really big (Bitcoin becomes widely adopted) or really disappointing (Bitcoin fizzles away).
In addition to spreading your bets across a basket of Bitcoin companies, this will allow for close monitoring of the progression of the Bitcoin revolution. By having some skin in the game an investor will be much more on top of Bitcoin's evolution.
I don't know whether Bitcoin is ever going to gain wide acceptance, but I do know that the advantages it presents are very real and very significant. I also know that if it does gain wide acceptance the investment opportunity here isn't just nice, it is enormous.
I'm forcing myself to at least pay attention and this basket of stocks will do that and give me a small amount of exposure at this early stage.