Who Will Benefit Most from an Explosion in Virtual Currencies?

With the potential for numerous IPOs, shares of Royal Bank of Canada (TSX:RY)(NYSE:RY) could be in line to benefit from the rise in cryptocurreny if they choose to participate.

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Press reports over the past week or so have revealed that many crypto currency firms will hit the market via the initial public offering (IPO) throughout 2018. Although estimates are set at close to 50 firms, investors who believe in the product may still need to take a step back and ask whether this will be good for the industry and, of course, determine the best place to position their money.

Although virtual currencies have widely been adopted over the past year, it is only due to bitcoin, the most popular method of exchange, that many people are aware of this market. Bitcoin is essentially the Kleenex of virtual currencies, as its name is so ubiquitous within the industry that many are more familiar with this name than they are “crypto currency.”

The potential challenge that numerous IPOs will present to the market is that investors seeking an alternative to the very expensive bitcoin will have too many options, which can sometimes make it impossible to arrive at a final outcome.

For those seeking to avoid the risk of owning unproven currencies and yet partake in the rally, the best place to position one’s investment dollars may just be in those companies that will bring these firms to market. Although most companies have traditionally been brought to market by Canada’s biggest banks such as Royal Bank of Canada (TSX:RY)(NYSE:RY) or Bank of Montreal, the reality is that smaller firms such as GMP Capital Inc. (TSX:GMP), which have a significant amount of experience in taking smaller companies to market, may benefit the most.

Over the past decade, GMP Capital has made a significant amount of revenue from the transactions that took place in Alberta’s oil sector. After the cooling of the oil industry, however, it became imperative to seek investment banking deals elsewhere rather than in Canada’s medical marijuana market, which was already red hot and growing increasingly hotter. Just as the marijuana industry has boomed throughout 2017, the crypto currency market may soon follow suit. Investors will therefore have to decide that for themselves before making an investment.

As we have witnessed over the past year, government regulations can potentially make incredible things happen. In the marijuana industry, opening the door to legalization has created a significant amount of wealth as the share prices of every company in the industry were impacted by the rising tide. Although investors may still experience the same wealth creation with crypto currencies, they will still need to exercise caution, as most new or unproven sectors have a tendency to fall short rather than outperform.

The biggest risk for this sector will be the introduction of government legislation that could make tracking or taxation of virtual currency much easier.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor RyanGoldsman has no position in any of the stocks mentioned.

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