As Bitcoin goes, so go the Blockchain exchange-traded funds that are in the crypto world’s orbit.
The ETFs, which invest in businesses with crypto ties, have shot up in the past week along with the most well-known digital money. Bitcoin broke above $46,000 on Monday, soaring ahead of the Senate vote on the infrastructure bill. The crypto is now at its highest level since May.
The $1.2 billion Amplify Transformational Data Sharing ETF (ticker: BLOK)—the largest and oldest of the group—has gained 13.4% since last Tuesday’s close. The $37 million VanEck Vectors Digital Transformation ETF (DAPP) is up by 24%, while the $66 million Bitwise Crypto Industry Innovators ETF (BITQ) has climbed 21%. The biggest increase is 25% for the $13 million Global X Blockchain ETF (BKCH), launched less than a month ago.
All are highly concentrated funds, with 20 to 50 stocks in companies expected to profit from crypto industry development. That includes Bitcoin miners; transaction and trading platforms; custodians; firms developing private blockchains; and other beneficiaries like chip makers and warehouses for mining machines.
While the funds have moved largely in lockstep with Bitcoin, they’re much less volatile. They could offer a side door to invest in the crypto industry before any Bitcoin ETF is approved to come to the market.
Investors need to be cautious about the differences in the funds, though.
The Amplify ETF, for example, is actively managed and—with its 43 holdings—the most diversified among peers.
The VanEck and Bitwise ETFs are both index funds, and invest in companies that derive significant revenue from their crypto business or hold large amounts of crypto assets. More than 70% of their portfolios overlap, but the VanEck fund charges 20 percentage points less.
The Global X fund is the latest and cheapest, with a 0.50% expense ratio. It doesn’t own crypto-holding companies like MicroStrategy (MSTR) and has a higher weight in Chinese firms.
Bitcoin’s latest surge comes ahead of the Senate’s vote on the infrastructure bill, expected sometime on Tuesday. The measure includes a provision about the tax-reporting requirements for cryptocurrency brokers and exchanges. Congress aims to raise $28 billion in revenue from crypto transactions to help pay for $550 billion in new infrastructure spending.
Crypto advocates have lobbied hard against the bill’s language, which doesn’t exclude miners or software developers from the definition of crypto brokers. This could prompt an exodus of the industry to offshore locations, they argue. The amendment is expected to be revised, and the crypto market is rising on signs that the industry is getting more allies on Capitol Hill.
The crypto industry might have better luck with the Securities and Exchange Commission, too. The agency has recently approved the Bitcoin Strategy ProFund (BTCFX), the first mutual fund that invests in Bitcoin futures, and Chair Gary Gensler signaled openness for futures-based Bitcoin ETF in a speech last week. Fund companies are moving fast. ProShares and Invesco have already submitted plans with the SEC to launch ETFs based on Bitcoin futures.
Still, many investors are hoping for a physically backed Bitcoin ETF, which would eliminate the unnecessary layers of middlemen and derivatives. An ETF focused on Bitcoin futures would require investors put down a substantial amount of money on margin to trade.
Write to Evie Liu at [email protected]