It's been impossible to ignore the meteoric rise of cryptocurrencies over the last year. Bitcoin, Ethereum, litecoin, bitcoin cash and others have all roared higher, with some rising tenfold, twentyfold, thirtyfold or more in the last 52 weeks.
But it's the underlying breakthrough technology, the blockchain, that cryptocurrencies have in common. And now one asset management firm has created a way for retail investors to invest in that technology, but in the form of a diversified exchange-traded fund.
How does this blockchain ETF work? Reality Shares Nasdaq NexGen Economy ETF (ticker: BLCN) is the freshest ETF on the market, having just launched Wednesday. With a stipulation to own between 50 and 100 positions and rebalance semiannually, the fund tracks an index of public companies Reality Shares created dubbed the Reality Shares Nasdaq Blockchain Economy Index.
According to the fund's debut news release, this index "is comprised of companies committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their proprietary use or for use by others."
This mandate is not to be confused with investing in companies heavily reliant on bitcoin or any of the other cryptocurrencies, which is an important distinction to make. On Wednesday, a day when cryptocurrencies across the board plunged and bitcoin crashed below the psychologically meaningful $10,000 range, BLCN was up a modest 0.2 percent.
In short, if you're looking to play the high-volatility, speculation-driven world of cryptocurrencies, BLCN is not your best bet. It doesn't correlate with the nominal performance of crypto.
Currently, there are 59 positions in its portfolio; their average market cap is $115 billion.
Some of the top 10 positions in its portfolio include: Intel Corp. ( INTC), Overstock.com, ( OSTK), International Business Machines Corp. ( IBM), Cisco Systems ( CSCO), Microsoft Corp. ( MSFT) and Hive Blockchain.
As the average market cap alone illustrates, this is no collection of shrimps, which has both benefits and disadvantages. On one hand, you're unlikely to see all your capital disappear in a flash, as one easily could when investing in cryptocurrencies.
On the other hand, this shows that BLCN is definitively not a "pure play" on the blockchain. The values of Microsoft, Intel, IBM and Cisco are almost negligibly impacted by the blockchain technology at this point, though all of them may be dabbling in it. That's highly likely to be the case for the foreseeable future.
Should you buy the BLCN? So, is BLCN worth your time? In a nutshell, no. Very frankly, BLCN is not a good index for the progression of blockchain technology; so many gigantic companies with big weights in the portfolio and with businesses entirely centered on different areas makes it poor in this regard.
[Read: What's the Best Bitcoin Wallet?]
On top of that, the companies that are popularly known as pure plays on blockchain (Hive Blockchain, for example), are also at high risk of being moved around at the mercy of the market when bitcoin and other cryptocurrencies fluctuate.
Finally, the fund has an expense ratio of 0.68 percent, or $68 annually per $10,000 invested. Traditionally, and over the long term, the single best predictor of a fund's performance is its expense ratio -- the higher it is, the worse the funds perform. When you can simply buy an ETF or index fund of the entire stock market for as little as 9 basis points, why pay more than seven times that amount ... for anything?
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