The price of Bitcoin has been building momentum. YTD, Bitcoin has doubled in price. Investors are anticipating positive announcements at this week’s Consensus 2019 Blockchain Week Conference in New York, sponsored by the New York City Economic Development Corporation and CoinDesk.
This conference comes on the heels of institutions increasingly embracing digital coins. Fidelity Investments plans to offer to buy and sell Bitcoin for institutional customers within a few weeks, and E*Trade Financial also announced it will begin offering crypto trading for bitcoin and Ethereum.
That’s not to say it has been all good news for digital currency. The crypto markets continue to be plagued by theft and fraud. The New York attorney general has accused Bitfinex, one of the largest Bitcoin exchanges, of hiding a loss of $850 million in client funds. Vancouver-based Quadriga Fintech Solutions owes 115,000 clients $193 million in cryptocurrencies and cash after the death of its founder last year. And most recently, crypto exchange Binance was breached, resulting in a $40 million theft.
But there is speculation that more mainstream companies such as eBay and Whole Foods will start accepting crypto payments. And Bakkt, a venture that includes NYSE’s Intercontinental Exchange, announced it will begin testing Bitcoin futures in July.
The next technical resistance level according to Bloomberg for bitcoin is $8,500.
So, other than investing in the speculative digital currencies themselves, how can investors get exposure to these developments?
Blockchain is the infrastructure upon which digital currencies like bitcoin and Ethereum function. So it would stand to reason that blockchain companies would offer investors a way to obtain crypto exposure in a less-volatile format.
But only the Amplify Transformational Data Sharing ETF (BLOK), an actively managed ETF which offers exposure to companies deriving revenue from blockchain technology, offers a positive correlation to bitcoin. A 100% correlation would be represented by a value of 1.00. BLOK has a 0.19 correlation with Bitcoin YTD and 0.42 versus Ethereum.
Source: Bloomberg, as of 5-13-19
Looking at the top holdings of the ETFs, offers clues as to why BLOK is more correlated with cryptocurrency.
Let’s look closer at a few of BLOK’s top holdings:
- GMO Internet is a Japanese company with cryptocurrency mining operations.
- Digital Garage is partnered with Blockstream, a blockchain startup, to create a trading network.
- SBI Holdings, is one of the biggest investors in blockchain technology including R3’s Corda and Ripple.
- GroundX, Korean company Kakao’s blockchain arm, just raised $90 million in a private token offering for its blockchain network Klaytn.
- Payments company Square is heavily investing in crypto initiatives.
- And Galaxy Digital Holdings, is a crypto merchant bank launched by former hedge fund manager Michael Novogratz.
Many of these companies trade on foreign exchanges like Japan and Korea and cannot be easily held by U.S. investors except in an ETF format.
So investors looking for a better proxy for crypto exposure and more pure-play exposure to Blockchain, should consider BLOK as a possible choice.
EQM Indexes is one of the research partners in the Amplify Transformational Data Sharing ETF (BLOK) and the co-developer of the EQM-Emerita Blockchain BLOK 50 Global Index (BLOK-50) and receives compensation from the ETF sponsor. It is not possible to invest directly in an index. Exposure to an asset class represented by an index is available through investable instruments based on that index. EQM Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. EQM Indexes makes no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. EQM Indexes is not an investment advisor, and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth on this website. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by EQM Indexes to buy, sell, or hold such security, nor is it considered to be investment advice. The author owns shares in BLOK.
Disclosure: I am/we are long BLOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: EQM Indexes does receive compensation related to the BLOK ETF.