Blockchain Etf Investment: Where To Put Your Money?

Blockchain ETFs are a great way to invest in blockchain technology without directly buying crypto. They are exchange-traded funds that hold a basket of publicly traded companies exposed to blockchain technology. Blockchain ETFs are an excellent option for investors who want to capitalise on the potential of blockchain technology without taking on the high risk of investing directly in cryptocurrencies. Blockchain ETFs tend to invest in a wider variety of assets than Bitcoin or crypto ETFs, which more narrowly track the price of individual cryptocurrencies.

Best blockchain ETFs of 2024

Blockchain ETFs allow investors to gain exposure to blockchain technology without directly buying crypto. Here are some of the best blockchain ETFs to consider in 2024:

Amplify Transformational Data Sharing ETF (BLOK)

The Amplify Transformational Data Sharing ETF is the largest blockchain ETF by net assets and the first exchange-traded fund dedicated to blockchain technology. Launched in January 2018, it has a 0.76% expense ratio and has seen a 56.8% increase in value since its inception. Notable holdings include Core Scientific Inc, Galaxy Digital Holdings, MicroStrategy Inc, and Coinbase Global.

Siren Nasdaq NexGen Economy ETF (BLCN)

The Siren Nasdaq NexGen Economy ETF is a passively managed fund that tracks the Nasdaq Blockchain Economy Index. It has an expense ratio of 0.68% and offers a diversified portfolio of stocks involved in the blockchain economy. Top holdings include MicroStrategy, Coinbase Global, and Block Inc.

First Trust Indxx Innovative Transaction & Process ETF (LEGR)

The First Trust Indxx Innovative Transaction & Process ETF offers exposure to a global portfolio of companies with varying degrees of involvement in blockchain technology. It has an expense ratio of 0.65% and includes companies such as Intel, JD.com, and PayPal Inc among its top holdings.

Bitwise Crypto Industry Innovators ETF (BITQ)

The Bitwise Crypto Industry Innovators ETF is a passively managed fund that tracks the performance of the Bitwise Crypto Innovators 30 Index, which includes 30 stocks of companies deeply involved in the crypto markets. The fund has an expense ratio of 0.85%, and its top holdings include MicroStrategy Inc, Mara Holdings Inc, and Coinbase Global.

Global X Blockchain ETF (BKCH)

The Global X Blockchain ETF invests in global companies participating in blockchain activities like digital asset mining and integration. It is a newcomer to the blockchain ETF space, with an annual expense ratio of just 0.5%. Notable holdings include TeraWulf Inc, Mara Holdings Inc, and Iris Energy LTD.

Other Notable Mentions:

• VanEck Digital Transformation ETF (DAPP)
• Fidelity Crypto Industry and Digital Payments ETF (FDIG)
• First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT)

Cryptocurrency vs blockchain ETFs

Blockchain ETFs are funds that meet at least one of the following two criteria:

• They are funds that invest in companies involved with the transformation of business applications through the development and use of blockchain technology.
• They are funds that invest in futures and options pegged to the performance of Bitcoin, Ether, and other cryptocurrencies, or in cryptocurrency investment products offered by asset managers like Grayscale or Bitwise.

Blockchain ETFs do not directly hold cryptocurrency assets. Instead, these funds are designed to invest in global companies, many of which are blue-chip technology names.

Cryptocurrency ETFs, on the other hand, track the price performance of cryptocurrencies by investing in a portfolio linked to their instruments. Like other such funds, crypto ETFs trade on regular stock exchanges, and investors can hold them in their standard brokerage accounts. These funds allow retail traders to gain direct exposure to crypto prices without owning the assets directly.

Both blockchain and cryptocurrency ETFs are subject to the dramatic price swings of the crypto markets, making them riskier investments. However, blockchain ETFs tend to be less risky than investing in the stocks of just one or a few blockchain or crypto-focused companies.

Risks associated with blockchain ETFs

Blockchain ETFs are a type of exchange-traded fund (ETF) that focuses on companies working with blockchain technology. While this technology is most well-known for its use in cryptocurrencies, it has many other applications, including in healthcare, supply chain management, and media.

Market and Macro Risks

Similar to other thematic investments, blockchain ETFs can be subject to additional sources of volatility. These include market-related risks, such as pricing valuations and sudden changes in investor sentiment, as well as macro risks like increased government regulation. The performance of blockchain ETFs can be heavily influenced by the sentiment and confidence in the broader cryptocurrency market.

Non-Performance and Technology Adoption

Blockchain ETFs carry the inherent risk of the non-performance or failure of the blockchain ecosystem. The success of blockchain technology depends on its widespread adoption, the reliability and stability of the network, and its successful integration into various industries. If blockchain technology does not gain traction or faces significant setbacks, it could negatively impact the performance of blockchain ETFs.

Early-Stage Technology Companies

Blockchain ETFs often invest in early-stage technology-based companies, which are prone to higher failure rates. While diversification through ETFs can mitigate stock-specific risks, there is still a possibility that specific holdings within the ETF may not perform well or fail altogether.

Overlap with Existing Technology Companies

The holdings of blockchain ETFs often have significant overlap with existing technology and internet companies. This means that a large portion of their revenues may come from non-blockchain products and services. For example, some blockchain ETF holdings might primarily generate revenue from networking equipment and computer processors, with only a small portion coming from blockchain-related hardware. As a result, the overall returns of these ETFs are vulnerable to the non-blockchain segments' performance.

Expense Ratios and Trading Charges

Blockchain ETFs typically have higher expense ratios and trading charges compared to other types of ETFs. For example, the Siren Nasdaq NexGen Economy ETF (BLCN) and Amplify Transformational Data Sharing ETF (BLOK) have expense ratios of 0.68% and 0.75%, respectively, which are significantly higher than the SPDR S&P 500 ETF (SPY) at 0.09%. These higher fees can impact the overall returns of the investment.

What is blockchain technology?

Blockchain technology is a digital ledger system that records data, typically cryptocurrency transactions, and distributes it across a broad network of computer systems. It is a string of information or "blocks" recorded on independent computers connected through a shared network. Each data block is frozen in time on an open ledger for all participants to access.

Blockchain technology is built on three core principles: cryptography, decentralization, and consensus. It uses cryptographic codes to link blocks together, creating a chronological sequence that is tamper-proof. The system is decentralized, meaning no single computer or organization owns the chain. Instead, it is a distributed ledger via nodes connected to the chain. Each node has its own copy of the blockchain, and any changes must be algorithmically approved by the network.

The consensus principle ensures that all nodes agree on the validity of new data before it is added to the chain. This is achieved through built-in protocols or smart contracts, which are self-executing programs coded into the blockchain that automate the verification process.

Blockchain technology offers enhanced security and transparency, making it particularly useful in industries where security is paramount, such as banking. It reduces the risk of fraud and corruption by democratizing access to information on an open ledger that everyone can see, making it nearly impossible for a single party to manipulate facts.

By linking verified data and making it accessible to all, blockchain also simplifies and automates processes that were previously inefficient. For example, Walmart uses blockchain to ensure food safety, tracing products back to their source in the event of a food safety issue. Blockchain technology is also used by energy companies to create peer-to-peer energy trading platforms and by media and entertainment companies to manage copyright data.

In summary, blockchain is a revolutionary technology that offers enhanced security, transparency, and efficiency across various industries. Its applications continue to evolve, and it has the potential to disrupt and transform traditional processes and systems.

How to invest in blockchain

Blockchain ETFs are a great way to gain exposure to the growth of blockchain technology without directly investing in cryptocurrencies. Here's a guide on how to invest in blockchain:

Understanding Blockchain Technology

Before investing in blockchain, it's important to understand what blockchain is and its potential applications. Blockchain is a type of decentralised data storage where blocks of encrypted data are built upon each other. This makes it nearly impossible to manipulate the data undetected. The blockchain principle ensures data security and eliminates the need for central administration, making it ideal for industries where security is crucial, such as banking. Blockchain is also the foundation for cryptocurrencies like Bitcoin and Ethereum.

Researching Blockchain ETFs

When choosing a blockchain ETF, consider factors such as the underlying index methodology, performance, size, cost, age, income, domicile, and replication method. Compare different blockchain ETFs to find the one that best suits your investment goals. Look at the expense ratio, assets under management, and the companies included in the fund.

Diversifying Your Investment

To reduce risk, diversify your investment across different blockchain ETFs and stocks. Investing in a blockchain ETF that holds a basket of publicly traded companies exposed to blockchain technology is a good way to start. For example, the Amplify Transformational Data Sharing ETF (BLOK) is the largest blockchain ETF by net assets and has companies like Core Scientific Inc, Galaxy Digital Holdings, and MicroStrategy Inc among its top holdings.

Understanding the Risks

Remember that blockchain technology is still relatively new, and its implementation is in the early stages. This means that blockchain ETFs can be highly volatile and prone to market-related and macro risks, such as pricing valuations, changes in investor sentiment, and government regulation. As with any investment, there is a potential for gains as well as losses.

Staying Informed and Starting Small

Stay informed about the latest developments in the blockchain space. Keep up with news and analysis from reputable sources to make informed investment decisions. When starting out, it's advisable to start with a small investment and maintain a long-term mindset. This way, you can gain exposure to the potential of blockchain technology while managing your risk.

Popular Blockchain ETFs

• Amplify Transformational Data Sharing ETF (BLOK)
• Bitwise Crypto Industry Innovators ETF (BITQ)
• Global X Blockchain ETF (BKCH)
• Siren Nasdaq NexGen Economy ETF (BLCN)
• First Trust Indxx Innovative Transaction & Process ETF (LEGR)

Frequently asked questions