Cryptocurrencies have mostly started the new year on a bearish note. For example, the and the, the two largest digital assets by market cap, are down around 11% and 14%, respectively. But over the past year, they have returned over 19% and 163%.
However, not all cryptos are down in 2022. , , , and have already seen significant gains over the past couple of weeks.
Yet the volatility of the digital asset space, especially in the short term, is not suitable for all retail portfolios. There are currently over 15,000 cryptocurrencies. For most investors, it is almost impossible to analyze these names to know which will be the next winner.
Additionally, not all investors have accounts with cryptocurrency brokers, such as Coinbase Global Inc (NASDAQ:). Therefore, a large number of small investors would also not be able to buy these assets.
So, today we’re showcasing two exchange-traded funds (ETFs) that might be suitable for those following the blockchain technology behind digital assets. These funds allow investors to access these assets through regular brokerage accounts.
We recently covered the VanEck Bitcoin Strategy ETF (NYSE:) and the Grayscale Ethereum Trust (ETH) (OTC:). Today’s discussion builds on this analysis.
1. ProShares Bitcoin Strategy ETF
- Current price: $27.17
- Range over 52 weeks: $24.88 – $44.29
- Fee rate: 0.95%
The last quarter of 2021 saw the launch of the ProShares Bitcoin Strategy ETF (NYSE:), the first bitcoin futures-linked fund to list in the United States. This ETF wrapper does not invest directly in bitcoin, but rather tracks the performance of bitcoin futures, which deviates from the spot price.
A term fund like BITO must be regularly renewed by the fund managers – in most cases, on a monthly basis. These funds generally trade “in contango”, which means that the futures price of the asset is higher than the spot price.
As a result, investors in these funds are exposed to contango risk, which can easily reach 6-9% per year, or even more. Futures-based ETFs therefore come with a sizable yield tag.
When you consider that BITO’s annual expense ratio is currently 0.95%, it’s easy to see why not everyone on Wall Street is very enthusiastic about ETFs based on futures contracts. term on bitcoin. Potential investors should fully understand their potential risk and reward profiles before pressing the “buy” button.
Readers should also note that the other term used to define the structure of the futures curve is backwardation, which refers to when futures prices fall below the spot price. Backwardation is a rare event that usually does not last long. Therefore, long-term investors in BITO should not necessarily expect to benefit from it.
On October 19, BITO opened at a price of $40.88. Then, on November 10, it hit an all-time high of $44.29. But the new year has already brought a record low of $24.88. Today, the fund’s price is $27.17, having lost well over 30% since inception.
Despite volatility and decline, assets under management stand at nearly $1.1 billion. While we remain optimistic about the growing adoption of digital assets, ETFs based on bitcoin futures are not suitable for all investors.
2. Global X Blockchain ETF
- Current price: $20.11
- Range over 52 weeks: $18.55 – 41.25
- Expense ratio: 0.50% per annum
PWC research highlights:
“Blockchain is the technology that allows the existence of crypto-currencies (among others). Bitcoin is the name of the most famous cryptocurrency, the one for which blockchain technology was invented. A cryptocurrency is a means of exchange, like the US dollar, but it is digital and uses encryption techniques to control the creation of monetary units and verify the transfer of funds.”
According to recent metrics, the blockchain market is expected to grow from around $5 billion in 2021 to over $67 billion in 2026, implying a compound annual growth rate (CAGR) of over 68%. As a result, many seasoned investors are keenly interested in companies at the center of such growth.
The Global X Blockchain ETF (NASDAQ:) invests in companies that advance or benefit from blockchain technologies. These names include crypto miners or those who develop blockchain applications and offer digital asset integration.
BKCH, which has 25 holdings, was first listed in July 2021. The top 10 holdings account for nearly three-quarters of net assets of $105.1 million.
In terms of subsectors, we see information technology (73.7%), finance (18.7%), communication services (2.6%) and real estate (2.2%). ). Nearly 60% of these companies are based in the United States. Next come those based in Canada (18.5%), China (9.5%) and Germany (7.4%).
Coinbase Global holds the largest share of the fund, with 12.98%. Other big names in the fund are cryptocurrency miners Riot Blockchain (NASDAQ:RIOT) and Marathon Digital (NASDAQ:MARA), German IT group Northern Data (DE:NB2), which focuses on artificial intelligence and machine learning, and digital asset broker Voyager Digital (OTC:VYGVF).
Since its inception, BKCH has lost around 20% of its value and reached an all-time high in early November. Long-term investors who are optimistic about blockchain technology might consider further researching the fund. Many names in the fund are also likely to benefit from potential increases in digital assets like bitcoin.