What are Blockchain exchange-traded funds? All you need to know
The blockchain is a digital ledger in which transactions are recorded and stored in linked data blocks, providing a secure and unalterable record of transactions.
Blockchain technology powers cryptocurrencies, which proponents argue have far more potential than just backing digital money.
Blockchain ETFs aim to give investors exposure to companies that make money from blockchain or create and explore the technology.
Blockchain technology is in the budding stage. Companies in this area, on the other hand, are well established. IBM, Amazon.com, and SAP are just a few examples.
Companies who want to gamble and engage in this technology want to buy regulated company stocks. ETFs, or Exchange Traded Funds, invest in companies that operate in the blockchain space.
What are Blockchain Exchange Traded Funds (ETF)?
An ETF is an investment product based on a valuable underlying asset. For example, a blockchain ETF invests in blockchain assets such as equities of blockchain firms, virtual currencies, and crypto trading activity, to mention a few.
On the other hand, a blockchain ETF does not have to invest in companies that deal with cryptocurrencies like Bitcoin.
When someone invests in an ETF, they are investing in the assets – which means, based on investment value in the fund, they possess the right to profit from the underlying assets.
While the legality of blockchain ETFs is apparent, certain regulators continue to prohibit Bitcoin and crypto ETFs due to liquidity and valuation issues. Bitcoin ETFs are more volatile than blockchain ETFs.
How do Blockchain ETFs work?
Aside from profit from advancements in blockchain technology, there are several advantages to investing in ETFs.
For example, the BLCN ETF tracks the Reality Shares Nasdaq Blockchain Economy Index. The index comprises equities from firms involved in blockchain technology research, development, support, and use, as well as related businesses.
When a company is studied for inclusion in the index, its stock is given a “Blockchain Score” based on several factors, including how the company contributes to the blockchain ecosystem, its blockchain products, economic impact, research and development expenditures, and its results and innovations.
The index includes all of the top 50 to top 100 firms with strong ranking scores. Every six months, rebalancing takes place and calculates new blockchain scores.
Finally, the ETF uses the benchmark to analyze the returns of each of the equities in the index and the company’s overall “contribution” to the blockchain economy.
The goal is to track the value of the blockchain economy and its growth, as indicated by the index’s top-performing enterprises.
Blockchain ETFs have $1.42 billion in assets under management and trades are made on the New York Stock Exchange. On average, the expense ratio is 0.64%.
With $950.22 million in assets, the Amplify Transformational Data Sharing ETF BLOK is the largest Blockchain ETF. The best-performing Blockchain ETF in the previous year was LEGR, which returned 0.27 percent.
The Defiance Digital Revolution ETF NFTZ, established on 12/01/21, was the most recent ETF in the Blockchain field.
|Amplify Transformational Data Sharing ETF (NYSEMKT: BLOK)||$1.06 billion||The largest blockchain ETF by net assets.|
|Siren Nasdaq NexGen Economy ETF (NASDAQ: BLCN)||$244 million||This ETF is focused on tracking the Nasdaq Blockchain Economy Index.|
|First Trust Indxx Innovative Transaction & Process ETF (NASDAQ: LEGR)||$152 million||This ETF has a portfolio of more than 100 stocks with exposure to blockchain technology.|
|Bitwise Crypto Industry Innovators ETF (NYSEMKT: BITQ)||$111 million||Launched in 2021, this is a focused portfolio of crypto and Bitcoin (CRYPTO: BTC) stocks.|
|Global X Blockchain ETF (NASDAQ: BKCH)||$102 million||Another newcomer in the blockchain ETF space.|
1. Amplify Transformational Data Sharing ETF
Holds 47 securities from throughout the world, with roughly three-quarters of them based in North America and the rest in Asia and Europe.
2. Siren Nasdaq NexGen Economic ETF
Comprises 64 stocks, focuses on technology companies, and has less exposure to cryptocurrency-holding corporations than other similar ETFs. This ETF features a nearly 50/50 split of domestic and overseas companies.
3. First Trust Index Innovative Transaction & Process ETF
The most diverse blockchain and crypto ETF with 103 stocks. A bit more than a third of its portfolio comprises companies situated in the United States.
China is the second-largest region represented, with the rest coming from Europe and Asia.
4. Bitwise Crypto Industry Innovators ETF
Consists of 30 different stocks. In a significant way, the Bitwise Crypto Industry Innovators ETF varies from the other funds.
The portfolio’s equities are a more focused bet on the crypto industry, with many of them being Bitcoin miners and other businesses that are accumulating the top cryptocurrency.
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.
5. Global X Blockchain ETF
The list’s newest, most minor (in terms of AUM), and most recent. The ETF consists of only 25 equities.
Although there are a few IT companies in the portfolio, such as Coinbase, Nvidia, and PayPal, most of the holdings are crypto mining companies.
What are some top-performing blockchain ETFs?
Some top-performing blockchain ETFs include BLCN, LEGR, BLOK, etc.
How do I invest in blockchain?
There is no method to directly invest in blockchains, as of January 2022. However, an investor can invest in companies and technologies developing services and products that use blockchain.
How many blockchain ETFs are there?
There are 11 blockchain ETFs in the US market with a total AUM of $714.85M.
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