The blockchain is going to change everything more than the Internet has. -- Brock Pierce
The Distributed Ledger Technology (DLT), more commonly known as blockchain, was introduced to the world along with bitcoin. While the attitude towards bitcoin and other cryptocurrencies remains mixed, the interest in its underlying technology is unambiguous.
Here’s a look at the exchange traded funds which offer an opportunity for investing in blockchain technology.
Over the years, there have been many projects, experiments, studies and applications based on blockchain. The dizzying list ranges from cross-border payments, securing medical records, supply chain and logistics monitoring, digital IDs, food security, real estate and land transfers, tracking prescribed drugs, the origin of diamonds, weapons’ tracking, or monitoring the vaccine supply chain -- blockchain is common to all these efforts. Over the years, Ive covered some of these very topics.
A Deloitte survey from 2020 noted, “While blockchain was once classified as a technology experiment, it long ago made the leap from theoretical to practical, and many executives recognize it as a true agent of change that is affecting the entire organization.” A Gartner survey of blockchain service providers revealed that 14% of enterprise blockchain projects moved into production in 2020, up from 5% in 2019, and is the growth momentum is expected to continue in 2021.
Worldwide spending on blockchain solutions is projected to grow at a robust pace in the coming years. IDC projects a five-year CAGR of 48% (during 2020-2024), which would take worldwide blockchain spending to $19 billion by 2024. An estimated $6.6 billion will be spent on blockchain solutions in 2021, an increase of 50% over 2020.
In addition to direct spending, there is a huge potential for further gains from the deployment of blockchain into our economic ecosystem. PwC’s ‘Time for trust’ report highlighted that blockchain has the potential “to add $1.76 trillion to the global economy and could enhance around 40 million jobs globally by 2030.”
Companies engaged in blockchain belong to different scales. Some are smaller companies focusing on specific applications and digital assets, while the bigger entities are providing blockchain-as-a-service in addition to other resources to boost the utilization of blockchain.
ETFs provide a diversified approach to invest in a combination of such companies. Here are six ETFs investors should consider:
Launched in January 2018, the Siren Nasdaq NexGen Economy ETF (BLCN) tracks the Nasdaq Blockchain Economy Index. The index follows a modified linear weighted approach and is constituted of companies that are committing material resources to developing, researching, supporting, innovating, or utilizing blockchain technology for their proprietary use or for use by others. The fund provides exposure to more than 70 companies across countries. The ETF currently has $303.03 million in assets under management and has an expense ratio of 0.68%. It has a low concentration of 17% in the top ten holdings, which are:
- International Business Machine
- JP Morgan Chase
Next is the Amplify Transformational Data Sharing ETF (BLOK), which is an actively managed ETF that invests primarily in companies that are involved in the development and utilization of blockchain technologies. BLOK maintains a portfolio hovering around 50 stocks across geographies, with 70% of its sectoral allocation towards software and services, and diversified financials. The fund has around $1.07 billion as assets under management, and an expense ratio of 0.71%. Currently, 40% of its assets are in the top ten holdings, which include:
- SBI Holdings
- Voyager Digital
- Argo Blockchain
- Galaxy Digital
- Digital Garage
- Hut 8 Mining
Launched in January 2018, the First Trust Indxx Innovative Transaction & Process ETF (LEGR) tracks the Indxx Blockchain Index, which is a composition of 100 companies that are enablers and users of the blockchain technology. The fund invests 90% of its assets in holdings that comprise the index. It currently holds 101 stocks across geographies with 30% and 11% allocation to the U.S. and China, followed by India, Germany, France, Switzerland, Spain, Japan, UK, and Sweden. The fund has $93.12 million as assets under management and an expense ratio of 0.65%. The top ten holdings are:
- International Business Machines
- P. Moeller
- China CITIC Bank
VanEck Vectors Digital Transformation ETF (DAPP) is a newly launched ETF which tracks the MVIS Global Digital Assets Equity Index, which constitutes companies that are participating in the digital assets’ economies. The fund has a compact portfolio of 26 stocks and has garnered $24.5 million in a short span since its launch in April 2021. The fund has an expense ratio of 0.65% and a 56.98% allocation in the top ten holdings.
- Galaxy Digital
- Voyager Digital
- Riot Blockchain
- Taiwan Semiconductor
- Marathon Digital
- Northern Data
Next is the Capital Link Global Fintech Leaders ETF (KOIN). Previously called Capital Link NextGen Protocol ETF (change effective April 6, 2021), the fund now tracks the ATFI Global Fintech Leaders Index with a leeway to invest up to 20% outside the index. All screened companies are clubbed under two themes—Digital Asset Providers and Solution Providers. The fund has $27.06 million as assets under management and 0.65% as its expense ratio. The top ten holdings are:
- Taiwan Semiconductor Manufacturing
- Nestle S.A.
The newest ETF in this segment is the Bitwise Crypto Industry Innovators ETF (BITQ). The fund launched on May 11, 2021 and tracks the Bitwise Crypto Innovators 30 Index. At least 85% of the index is focused on pure-play crypto companies, including bitcoin and crypto trading venues, crypto mining and mining equipment firms, and service providers while the remaining 15% is allocated towards large cap firms with at least one significant business line focused on the crypto economy.
Before blockchain can take the world by storm, it needs to overcome multiple challenges such as scalability, cybersecurity, compliance with established accounting, among others to move towards seamless adoption. That being said, the technology has the potential to revolutionize a spectrum of industries by building an ecosystem that offers transparency, immutability, security, and trust.
Information on funds based on factsheets. Data as on sectoral weightage, top constituents and assets as on May 13, 2021. The author has no position in the index mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.
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