While the Securities and Exchange Commission has yet to approve an actual Bitcoin ETF, it is allowing investors to buy shares of ETF’s which are focused on the technology which makes cryptocurrencies tick, the blockchain.
After the explosion of Bitcoin back in the fall when the price of one coin jumped from around $4,000 to over $19,000, a number of different companies began clamoring to get involved in cryptocurrencies directly or just in the blockchain technology, and that is where these Exchange Traded Funds are focused. The thinking is that while you may not want to invest directly in a cryptocurrency, you may still want exposure to it through the businesses that help it operate.
For example, you could buy Square Inc. (SQ), the payment processing company that a few weeks ago announced it would now allow customers to pay with Bitcoin. Or perhaps it is through a less direct method of buying shares of NVIDIA (NVDA), the semiconductor company, which produces the microprocessors that are needed to make cryptocurrencies a reality. Or lastly, perhaps it just a previous beverage company, Long Island Iced Tea Corp. that now wants to get into blockchain and changes its name out of the blue to Long Blockchain Corp. (LBCC).
The first blockchain ETF to hit the market was Reality Shares NASDAQ NexGen Economy ETF (BLCN) on January 15th, 2018. Then on the 16th, Amplify Transformational Data Sharing ETF (BLOK) began trading. On the 24th, First Trust Index Innovative Transaction & Process ETF (LEGR) began trading, while finally on the 30th, Innovation Shares NextGen Protocol ETF (KOIN) went live.
All four ETF’s share the same language in their fund descriptions which goes something along the lines of a portfolio of equities which have exposure to, are involved in research, development or use, a focus on, or an interest in, blockchain technology.
It would appear all four ETF’s will be competing for the same investors and will likely hold the same stocks, (currently we only know the holdings of the first three, and they are very similar). Furthermore, all four ETF’s have expense ratios within the 0.65% and 0.70% range.
But, while all four ETF’s where rolled out within weeks of each other, BLOK and BLCN have a massive head start regarding capital raised. Currently, BLOK has over $188 million in assets under management, BLCM has over $110 million, while LEGR sits at just around $9 million and KOIN has approximately $3.5 million.
The way the stocks will be picked though may be the only real differential of the four ETF’s. BLOK will be an actively managed portfolio, BLCN will track an index, but with loose freedom for management, LEGR will be straight tracking an index, while KOIN will be using an artificial intelligence machine to pick its investments.
With the funds all being so new, we have limited information on what they hold, and it is hard to make guesses on how they will perform. Furthermore, though it will be interesting to watch them evolve as cryptocurrencies head into what many would consider their second year of life.
Lastly, investors should note that if cryptocurrencies stumble in 2018, these ETF’s could be negatively impacted despite not actually owning the asset. But, most would agree that what is unique about Bitcoin and the others is not what it is, but what makes it work; i.e., the blockchain.
P.S. Those in Canada will not have to wait much longer to get their chance to invest in the blockchain craze as their first ever blockchain ETF will begin trading sometime in February under the ticker HBLK.
Matt Thalman
INO.com Contributor - ETFs