Updated: Mar 26
Blockchain was among the hottest and best performing sectors in 2021. The global blockchain market was valued at nearly $5 billion in 2021, with highly optimistic forecasts suggesting it could grow more than tenfold to more than $67 billion by 2026.
Blockchain is best known as the technology behind crypto-currencies, where coins are exchanged and their records kept in a decentralised manner. But the blockchain principle can be applied to many sectors, processes and cases. It can be used for contracts, for the certification of property rights, in logistics and for many other purposes. The result is a very diverse investment universe.
With the rise of crypto-currencies, a host of related investment instruments have emerged as viable options for all types of investors to access this universe. ETFs (exchange-traded funds) are one of them. The blockchain ETF offering started in 2018 with the launch of the Amplify Transformational Data Sharing ETF (BLOK), the Reality Shares Nasdaq Blockchain Economy ETF (BCN) and the First Trust Indxx Innovative Transaction & Process ETF (LEGR) which tracks the Indxx blockchain,
Blockchain ETFs allow investors to take advantage of this growing ecosystem by investing in a diversified portfolio of companies at a lower cost. For risk-averse investors, this is a safer and more convenient alternative to other investment options.
How to invest in blockchain
There is a misconception that Blockchain ETFs are a proxy for investing in crypto-currencies; but in fact, there are some key differences between Blockchain ETFs and crypto-currency investments:
· Blockchain ETFs primarily track the share prices of companies that are leveraging or benefiting from the development and application of blockchain technology. This includes companies that operate large-scale computing operations to mine cryptocurrencies or otherwise support these activities.
· Blockchain ETFs buy shares in companies like any sector or theme fund.
· Blockchain ETFs can invest in futures and options linked to the performance of crypto-currencies, but do not buy crypto-currencies. The funds that buy these coins are crypto-currency ETFs.
The benefits of blockchain ETFs
Blockchain ETFs are a new phenomenon, with only a few dozen such funds operating worldwide, but most of these funds have less than two years of track record. In their current form, blockchain ETFs are relatively less volatile than crypto-currencies. ETFs offer a diversified approach to investing in a combination of companies across industries.
The offer remains limited
While the market supply remains limited, the number of new blockchain ETFs continues to grow exponentially. Many larger asset managers such as Blackrock have recently announced the launch of new Blockchain ETFs in 2022. Currently, the largest blockchain ETF is the Amplify Transformational Data Sharing ETF BLOK with $986.31 million in assets. Over the past year, the First Trust ETF (LEGR) was the best performing blockchain ETF with 16.01%.
Blockchain ETFs can be found in the following asset classes:
- Asset allocation
4 Indices on the blockchain, which are tracked by ETFs
16 ETFs worldwide on blockchain
0.50% p.a. - 0.65% p.a. ,Total Annual Expense Ratio (TER) of blockchain ETFs
8 Blockchain ETFs to consider in 2022
· Amplify Transformational Data Sharing ETF (BLOK)
· Siren ETF Trust Siren Nasdaq NexGen Economy ETF (BLCN),
· First Trust Indxx Innovative Transaction & Process ETF (LEGR)
· Invesco CoinShares Global Blockchain UCITS ETF (BCHS)
· Bitwise Crypto Industry Innovators ETF (BITQ)
· VanEck Vectors Digital Transformation ETF (DAPP)
· Global X Blockchain ETF (BKCH)
· Capital Link Global Fintech Leaders ETF (KOIN)
Tabel as of January 31st 2022
Blockchain ETFs are a safe way for investors to discover and profit from the rapidly developing blockchain ecosystem. Although ETFs have generally performed poorly over the past year, there is hope that ETFs will follow the market's recovery, as recently predicted.
As with any thematic investment, blockchain ETFs carry the inherent risk of non-performance, and of the blockchain ecosystem not being able to adapt or fail.
Disclaimer: This article is provided for information purposes only and does not constitute an invitation to invest. Please seek advice from your investment advisor before investing.