Blockchain is a fairly new technology that generates a ledger, which stores all information regarding a transaction (date, time, dollar amount, etc.). This ledger is decentralized, meaning it is not kept in one location but rather distributed across a network that can be viewed by the public. The information in the ledger is also incorruptible. Blockchain ETFs offer dual benefits—pooled investments in baskets of stocks like that of a mutual fund, and real-time trading with tick-by-tick price changes like that of a stock.
Criticism of Blockchain ETFs
Blockchain ETFs are a relatively recent phenomenon. As such, it is difficult to determine trends or derive conclusive results from their performance. However, many blockchain ETFs have witnessed positive returns in the last couple of years. That being said, investors are still concerned with the long-term prospects of blockchain ETFs, as some claim there is a novelty to blockchain as a technology, which may not last. It is yet to be determined if this is a lasting technology with long-term applications that would justify increased investments. As with all investment portfolios, it is best to seek diversification and not concentrate on only one type of investment. Blockchain ETFs also come with the inherent risk of investing in technology-based startups while the blockchain concept is still evolving, and, therefore, regularly hitting regulatory roadblocks across the globe.
Example of Blockchain ETFs
Blockchain ETFs can be actively managed or passively managed, will cover companies with international exposure, and will track the performance of blockchain-based indexes specially designed to serve as benchmarks for the ETFs.
Two popular blockchain ETFs include the Siren Nasdaq NexGen Economy (BLCN) ETF and the Amplify Transformational Data Sharing (BLOK) ETF.
The Siren Nasdaq NexGen Economy seeks to replicate the returns of the Siren Nasdaq Blockchain Economy Index. As of Sept. 21, 2021, the fund had $275.5 million in net assets and an annualized performance of 23.39% since inception.1
As of Sept. 21, 2021, the fund invests a third of its money in information technology companies, with its top holdings being Coinbase Global, Inc., Huobi Technology, and Accenture PLC Ireland, Z Holdings Corp, Square, Inc., and Fujitsu. The fund has a gross expense ratio of 0.68%.
The Amplify Transformational Data Sharing ETF has net assets of $1.9 billion as of Sept. 21, 2021, an annualized performance of 30.37% since inception, and a gross expense ratio of 0.71%. The fund invests 55.8% of its assets in the software and services sector and 18.3% in financial services. Its top holdings, as of Sept. 21, 2021, are MicroStrategy (MSTR), Hut 8 Mining Corp, and Square, Inc.