Just because Bitcoin is a disruptive technology doesn't mean we won't see some Bitcoin stock winners - companies that will exploit the digital currency for the benefit of their own businesses.
We can find Bitcoin stock winners in several industries. Some are reaping a benefit now, while others will need to wait a few years until Bitcoin "goes mainstream," and average people start using it.
Bitcoin appeals to merchants because the 1% fees that processing companies like Coinbase and BitPay charge are much lower than the 2% to 3% fees they pay to credit card companies like Visa Inc. (NYSE: V) and MasterCard Inc. (NYSE: MA). Plus, because the transactions include no personal data, Bitcoin is more secure than credit cards or debit cards.
But the first movers in this area - Overstock.com Inc. (Nasdaq: OSTK) and Tiger Direct (a subsidiary of Systemax Inc. [NYSE: SYX]) - have reported some very promising early results.
Taking Bitcoin Pays Off for These Bitcoin Stock Winners
Overstock says Bitcoin has accounted for about $1.4 million in sales since it started accepting the digital currency in January. That's only about 0.4% of the online retailer's total sales, but the company has reason for optimism.
That's because customers paying with Bitcoin have spent 34% more than other customers. Better still, 58% of those using Bitcoin were new customers.
And that's been typical of the retail experience with Bitcoin.
Tiger Direct says it has also noticed that Bitcoin users spend more than other customers and is thrilled that 80% of them are new to Tiger Direct.
BloomNation, a startup that enables local florists to reach customers directly, started accepting Bitcoin just before Valentine's Day. BloomNation says customers using Bitcoin have spent about 50% more than other customers.
What would really shake up the retail world would be if one of the giants - Amazon.com Inc. (Nasdaq: AMZN) or eBay Inc. (Nasdaq: EBAY) - started accepting Bitcoin.
Amazon has shown little interest so far, but eBay Chief Executive Officer John Donahoe has spoken favorably about Bitcoin in recent weeks and has strongly hinted that Bitcoin will soon be accepted at eBay and its subsidiary, PayPal.
"Digital currency is going to play an important role going forward," Donahoe said in a recent CNBC appearance. "At PayPal we're going to have to integrate digital currencies in our wallet."
But while the benefit to retailers so far has been incremental, one group of Bitcoin stock winners is profiting now...
Some Bitcoin Stock Winners Are Not So Obvious
The group that is profiting the most from the Bitcoin phenomenon right now are the chipmakers.
If that seems odd, consider that the Bitcoin network is maintained by very powerful computers that confirm each transaction as part of their "mining" activities of trying to solve a difficult math problem. The miner that solves a block currently is rewarded with 25 bitcoins.
However, as the Bitcoin price rose from $14 to past $1,000 last year, Bitcoin mining became an arms race.
Theoretically, more powerful machines will yield more solved blocks (and more bitcoins), but the network protocol is designed to release new bitcoins at a steady pace. It does that by raising the difficulty, which in turn requires even more powerful computers with more powerful chips.
"Due to the growth of the Bitcoin network, mining machines now require powerful application-specific integrated circuits (ASICs) that are designed specifically to mine Bitcoins," analyst Gil Luria of Wedbush Securities wrote in a report earlier this year.
Luria said he believes more than $200 million has been spent on Bitcoin mining rigs this year, specifically citing Taiwan Semiconductor Mfg. Co. Ltd. (NYSE ADR: TSM) and privately held GlobalFoundries.
In addition, Luria said Advanced Micro Devices Inc. (NYSE: AMD) is benefiting from the mining of digital currencies such as Dogecoin and Litecoin, "as AMD chips are preferred by Litecoin miners over other competitor GPU chips."
Finally, there's a group of possible Bitcoin stock winners - the tech titans - that could use the digital currency to as a weapon in the battle to dominate mobile payments.
Bitcoin Will Disrupt the Mobile Payments Landscape
For the past few years there's has been much talk about mobile payments - people using their smartphones instead of cash, checks, or credit and debit cards to pay for things when on the go.
Any company that could dominate this space could profit not only by inserting a small processing fee, but by having the ability to collect vast amounts of data on the shopping habits of its customers. That's the sort of data advertisers fantasize about.
And while in theory any electronic payment system would do, Bitcoin's security advantages over credit and debit cards make it an ideal fit for a smartphone-based mobile wallet.
In this arena we have three main contenders - Apple Inc. (Nasdaq: AAPL), Google Inc. (Nasdaq: GOOG, GOOGL), and Facebook Inc. (Nasdaq: FB).
Google already has a mobile wallet and is suspected to be considering adding Bitcoin as an option. Google's biggest advantage is that its Android software runs about 80% of the smartphones being sold now.
Apple's long-rumored mobile wallet is expected to appear this year. It will incorporate its Touch ID technology, which will make payment literally as easy as one touch of a button. It isn't known whether Apple is looking at including Bitcoin in its wallet, but it recently lifted a ban on Bitcoin wallet apps in the iTunes App Store.
And Facebook is also reported to be working on an e-wallet. Not much is known about the project, but in the past Facebook itself has dabbled in virtual currencies, so it would probably be open to supporting Bitcoin. Facebook also has about 1.3 billion active users, although it's not clear how many of those would trust a social network as a payment vehicle.
It's more likely that the Bitcoin stock winner here will be either Apple or Google, with the edge going to whoever adopts Bitcoin first and can make the experience the most seamless.
Which stocks do you think will benefit from the Bitcoin economy? Talk about it on Twitter @moneymorning or Facebook .
Editor's Note: Investors should keep an eye on these Bitcoin stock winners, but they also need to beware of the Bitcoin stock losers . These companies could have their business models severely disrupted, if not wiped out by the digital currency - and yet the CEOs all have their heads in the sand. This isn't going to end well...
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- CNBC: Bitcoin Key to Future of Online Payments: EBay CEO
June 20, 2014 at 09:10PM
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