Hopes about a bitcoin ETF were downed by the U.S. Securities and Exchange Commission (SEC).A public letter written by Dalia Blass, director at SEC's Division of Investment Management, in mid Jan stated that there are "significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors." Liquidity is another issue that needs to be scrutinized (read: No Bitcoin ETFs in 2018?).
Naturally, bitcoin enthusiasts will look for other ETF investing options that could offer ways to tap this ultra-popular cryptocurrency. Blockchain is such an option. As per a recent source, “Blockchain, the renowned Bitcoin wallet provider, has partnered with SFOX to make it more convenient to buy and sell cryptocurrencies and digital assets.” Overall, blockchain is a digital ledger with an incessantly increasing list of records, called blocks, “that are designed to be resistant to modification.”
So, if investors are not getting a bitcoin ETF now, they can definitely be in touch with the concept through blockchain ETFs. And to invest in this technology, investors has moderate number of products. More recently, First Trust launched an ETF, namely First Trust Indxx Innovative Transaction & Process ETF LEGR that seeks to capture the performance of companies involved in blockchain technology.
Inside LEGR
This fund seeks to track the Indxx Blockchain Index. The fund will invest at least 90% of its net assets (including investment borrowings) in common stocks and depositary receipts that comprise the index, which looks to add only companies that are strongly related to the use of blockchain technologies. The index held about 67 companies as of mid-January.
Intel (NASDAQ:INTC), NVIDIA (NASDAQ:NVDA) and Micron Technology (NASDAQ:MU) are top three holdings of the fund. Information Technology (68.1%) is the top sector of the fund followed by Financials (23.1%) and Industrials (4.39%). United States makes up about 49.25% of the fund while Taiwan (7.69%), Germany (5.91%) and Ireland (4.63%) take the next three positions. The fund charges 65 bps in fees.
How Does It Fit in a Portfolio?
The fund could be an intriguing choice for investors seeking to bet on the technology that takes them to bitcoin and other cryptocurrencies. The digital currency was the hottest trade of 2017. But now the currency is staging a volatile movement and is being accused of overvaluation.
But Blockchain technology, which is driven by nodes of peer-to-peer computers around the world, is seeing a meteoric rise. As per a source, “Blockchain has the power to fundamentally disrupt the entertainment industry because it brings out a completely new, decentralized model for content distribution.” Streaming companies and Cable still mostly depend on “centralized” aggregation and distribution which is against Blockchain’s more-effective decentralized model.
Blockchains allow information to be shared in peer-to-peer networks, but data in any given block cannot be changed or copied without changing all subsequent blocks. This makes the technology fraud-proof. Needless to say, investors would be interested in this technology.
ETF Competition
Though not tough, competition is there in the blockchain space. Reality Shares Nasdaq NexGen Economy ETF BLCN and Amplify Transformational Data Sharing ETF (V:BLOK) are two new launches. The funds charge 70 bps and 68 bps in fees, respectively (read: Two Blockchain ETFs Go Live for The First Time).
Also, ETFs offering exposure to the blockchain ecosystem via semiconductor companies that make chips required for bitcoin mining, might pose threats. The most popular funds include iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF SMH. Both are soaring on the bitcoin craze (read: Will Chip ETFs Continue Their Hot Streak as Q4 Unfolds?).
The ETFs will no doubt get a first-mover advantage as these are new entrees in the blockchain space. This in turn would help the funds in garnering immense investor interest.
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