Blockchain ETFs: The Next Big Thing in Investing?

Blockchain ETFs: The Next Big Thing in Investing?
Blockchain ETFs: The Next Big Thing in Investing?

Blockchain ETFs has a bright future. Thousands of cryptocurrencies have sprung up in recent years to capitalize on the opportunity, but this may be a dangerous investment you aren’t ready to make.

But don’t be concerned. Many publicly traded organizations are also developing and implementing blockchain technology in their operations. Investing in blockchain through an exchange-traded fund (ETF) formed by these companies could be a good place to start.

In 2023, consider investing in blockchain ETFs.

A blockchain is a distributed digital ledger (essentially software) that is distributed among users. It’s the fundamental building block of cryptocurrencies, but it may also be used to develop decentralized finance (DeFi) systems, enable smart contracts, and provide artists with new opportunities to create work and communicate with supporters.

With so many applications for blockchain technology, there are a plethora of businesses utilizing it. That is why an ETF specializing in blockchain and crypto firms is a great place to start when investing in the financial services sector’s future.

1. Strengthen the Transformational Data Sharing ETF

Amplify Transformational Data Sharing ETF, by far the largest blockchain ETF in terms of assets (managing $1.06 billion as of January 2022), is a fantastic place to start your quest for the finest blockchain and crypto industry ETFs. The product has a 0.71% expense ratio, which means that for every $1,000 invested, $7.10 is removed from the fund’s performance in fees each year.

The Amplify Transformational Data Sharing ETF holds 47 stocks from throughout the world, with roughly three-quarters of its holdings in North American companies and the remainder in Asia and Europe. It was started in January 2018 and has nearly doubled in value, with the majority of the return occurring in 2020, when high-growth tech stocks gained early in the pandemic.

The fund’s top holdings are cryptocurrency trading platform Coinbase Global (COIN 0.81%), semiconductor leader Nvidia (NVDA -2.43%), which designs GPUs, the hardware required for crypto mining, and commodities exchange CME Group (CME 1.55%), which supports Bitcoin (BTC -0.24%) and Ethereum (ETH -0.41%) derivatives contracts.

2. Siren Nasdaq NexGen Economy ETF

The Siren Nasdaq NexGen Economy ETF is much smaller than Amplify’s blockchain ETF, but it provides investors with a somewhat different perspective on the industry. It is made up of 64 stocks, concentrates on technology companies, and avoids some of the bitcoin holding corporations featured in other similar ETFs. It has a 0.68% expense ratio.

This ETF is almost evenly split between domestic and overseas companies. It was started in January 2018 and has returned more than 70% since its debut as of this writing. Coinbase is among the top holdings, as are older, well-known tech behemoths such as IBM (IBM 1.25%), Accenture (ACN 1.47%), and PayPal Holdings (PYPL 0.79%).

3. Invest in the First Trust Indxx Innovative Transaction & Process ETF.

The First Trust Indxx Innovative Transaction & Process ETF comes next. First Trust is a larger organization that has launched numerous ETFs and other financial products, but this is one of its more recent launches, which began in January 2018. With 103 stocks, the fund is the most diverse blockchain and crypto ETF on this list. The yearly cost ratio for the First Trust Indxx Innovative Transaction & Process ETF is 0.65%.

Companies situated in the United States account for little more than one-third of its portfolio. China is the second-largest represented region, accounting for 11% of total ownership, with the remainder made up of European and Asian countries. While increased overseas equity exposure may appeal to some investors, it has hampered fund performance since early 2018. At the time of writing, the ETF had gained less than 50% since its launch.

Micron Technology (MU 0.05%), AMD (AMD 0.44%), Nvidia, Danish shipping corporation A.P. Moeller-Maersk A/S (AMKBY 0.11%), and Cognizant Technology Solutions (CTSH 0.04%) were the top companies in the First Trust Indxx Innovative Transaction & Process ETF as of January 2022. If you want a well-diversified portfolio with a few blockchain-related companies, First Trust’s ETF is worth considering.

4. The Bitwise Crypto Industry Innovators ETF

The Bitwise Crypto Industry Innovators ETF is a newbie to the blockchain ETF market, having debuted in May 2021. It has 30 stocks and a somewhat high annual expense ratio of 0.85%.

The Bitwise Crypto Industry Innovators ETF differs significantly from the other ETFs on this list. The stocks in the portfolio are a more focused bet on the crypto industry, with many of them being Bitcoin miners and other outfits amassing the top cryptocurrency. Coinbase was the largest holding in January 2022. MicroStrategy (MSTR -0.15%), a tech firm and major Bitcoin holder, ranks second, and Silvergate Capital (NYSE:SI), a bank and institutional crypto trading platform operator, ranks third. The three equities account for approximately one-third of the ETF’s portfolio.

The Bitwise Crypto Industry Innovators ETF has generally tracked the price of Bitcoin since its inception, owing to its bias toward companies that own Bitcoin and other crypto pure-plays. The fund is down 16% as of this writing. However, at less than a year old, it’s too early to say how this ETF will perform. Still, if you’re searching for a means to invest in cryptocurrency without the hassle of buying it directly, this fund could be the solution.

5. The Global X Blockchain ETF

The Global X Blockchain ETF is the list’s newest, smallest (in terms of total assets), and youngest blockchain ETF. The ETF, which will be launched in July 2021, will consist of only 25 stocks and have an annual cost ratio of 0.5%.

High-growth technology stocks struggled in 2021, as seen by the Global X Blockchain ETF’s minus 10% return from inception as of this writing. There are a few IT companies in the portfolio, such as Coinbase, Nvidia, and PayPal, but the majority of the holdings are crypto mining companies. Riot Blockchain (RIOT 0.1%), Marathon Digital Holdings (MARA 0.0%), and Hut 8 Mining (HUT 0.44%) all have significant holdings in this ETF.

Global X Blockchain ETF, like Bitwise ETF, has generally tracked the price of Bitcoin in its short history, but it has underperformed the leading cryptocurrency due to underperformance of the portfolio’s IT and crypto stocks. Nonetheless, this is another great alternative for investors seeking a pure play in the cryptocurrency and blockchain sectors.

Frequently Asked Questions (FAQs)

Are blockchain exchange-traded funds (ETFs) a good investment?

Those interested in the potential expansion of the blockchain sector may want to consider investing in blockchain ETFs. These ETFs provide exposure to a diverse portfolio of blockchain technology companies, lowering the risk associated with individual stock investments.

What will be the next major item in blockchain technology?

The next big thing in blockchain might be developments in decentralized finance (DeFi), non-fungible tokens (NFTs), scaling solutions, and blockchain integration in industries such as healthcare and supply chain management. Keep up with industry developments to spot new opportunities.

Where do blockchain ETFs put their money?

Blockchain ETFs invest in a wide range of companies that use blockchain technology. Companies developing blockchain solutions, providing infrastructure, providing cryptocurrency-related services, and others fall into this category.

Why should you invest in a blockchain ETF?

Investing in a blockchain ETF allows you to participate in the future growth of the blockchain industry without having to pick specific stocks. It diversifies among numerous organizations, lowering the risk of investing in a single entity. It also provides exposure to an innovative industry with transformative potential.