Prior to 2018, there were no exchange traded funds dedicated to companies involved with the booming blockchain space. Now, there are four dedicated blockchain ETFs, though the Securities and Exchange Commission forbids fund issuers from using the term “blockchain” in fund names.
To date, success for blockchain ETFs has been mixed. The first two that came to market, the Amplify Transformational Data Sharing ETF (NYSE: BLOK) and the Reality Shares Nasdaq NexGen Economy ETF (NASDAQ: BLCN), debuted in January and have $186.6 million and $124.5 million in assets under management, respectively.
The blockchain investment theme is still in its nascent stages, indicating that ETFs such BLOK, BLCN and rivals may be early to the party, but early is better than late or never.
“Investment in the space totals billions of dollars,” Morningstar said in a recent note.
“Large corporations, venture capital funds and initial coin offerings are funding projects. The activity is not completely misguided; blockchain has the potential to disrupt economic activities ranging from simple payments to the structure of a corporation as it currently exists.”
BLOK is an actively managed ETF, while BLCN follows an index “designed to measure the returns of companies that are committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their use or for use by others,” according to Reality Shares.
Why It's Important
While cryptocurrencies such as bitcoin are seen as potential threat to traditional forms of payment, blockchain could disrupt scores of industries.
“It is becoming clear that blockchain technology and cryptoeconomics could someday threaten a wide variety of business models, and conceivably the traditional means of corporate organization itself,” said Morningstar. “The decentralized autonomous organization allows algorithms or owners, rather than layers of bureaucracy, to govern an organization.”
Blockchain ETFs are usually heavily allocated to technology stocks, but BLCN features some sector diversity, with 34.5 percent of its weight allocated to consumer discretionary and financial services stocks.
As is the case with any new ETF focusing on a nuanced, highly specific market segment, bitcoin funds offer opportunity but could see fits and starts along the way.
“Blockchain technology has plenty of potential, but there are still obstacles to world domination. These include difficulties inherent in the technology itself, as well as the established economic moats of the incumbents in various industries,” according to Morningstar.
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