As Bitcoin and Ethereum prices continue to skyrocket, it’s clear cryptocurrency is here to stay. How to play it? Try these 3 crypto ETFs.
As last week’s Coinbase (COIN) IPO suggests, cryptocurrency is mainstream now. Long shunned and dismissed as a temporary fad by many investors, Bitcoin and Ethereum are here to stay, and so are the stocks that benefit from the meteoric rise in those digital currencies. And yet, cryptocurrencies remain a new frontier for most investors. It’s hard to know how to profit from them. Crypto ETFs are a good place to start.
Any crypto ETF is naturally a new product. But they’re already starting to capture the attention of institutional investors. With that in mind, let’s explore three crypto ETFs that invest in listed companies with cryptocurrency holdings or are poised to benefit from expansion of blockchain technology (plus two investment trusts that hold cryptos directly).
3 Crypto ETFs to Consider
VanEck Vectors Digital Transformation ETF (DAPP) – This is a brand-new fund intended to track the MVIS Global Digital Assets Equity Index, which is comprised of companies participating in global digital asset economies. The just-launched fund is still very small but likely to grow as investors come on board. It offers a 0.65% expense ratio, which is slightly below its intended peers and its top holdings include Square Inc. (SQ), the increasingly prevalent mobile payment processing company (currently over 8% of the portfolio) and Galaxy Digital Holdings (OTC: BRPHF, TSE: GLXY), a FinTech company that provides asset management services, trading, and direct investments, all in the cryptocurrency space (also over 8% of the fund portfolio). This fund is too new to provide historical returns, but it promises diversified exposure to companies with the potential of generating 50% of revenues from digital assets.
Amplify Transformational Data Sharing ETF (BLOK) – This fund, which was established in 2018, also offers diversified exposure to blockchain and cryptocurrency companies. Given its (relative) maturity in the sector, this fund has over $1.4 billion assets-under-management (AUM) and offers reliable trading volume. BLOK offers a 0.71% expense ratio, slightly higher than peers, and its top holdings include both SQ and GLXY, as well as small direct investments in a Bitcoin investment trust that we’ll touch on later. A key consideration with this fund is its willingness to hold positions in more established FinTech companies (like PayPal (PYPL), which comprises 4.5% of the fund) as well as global giants like Alphabet (GOOGL) and Visa (V). The holdings in established giants are relatively small (each of those two positions is below 2% of the portfolio) but raise the risk of decoupling this fund’s returns from the performance of cryptocurrencies. At best, this offers established healthy volume in a proven fund with some performance as a crypto ETF. At worst, this is simply another FinTech ETF whose performance is better replicated by other lower-expense funds.
Siren Nasdaq NexGen Economy ETF (BLCN) – Much of what was written about BLOK could be repeated here. This fund was also established in 2018 but offers a 0.68% expense ratio and has only $334 million AUM. The fund also offers reasonable liquidity (trades over 100,000 shares each day) but magnifies the problems of BLOK. The top holdings include crypto/blockchain companies (GLXY is a top holding in all the funds) but a smaller percentage of fund assets are allocated to those. Instead of prioritizing cryptos, this fund’s stated goal is to invest in companies “committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their use or for use by others.” From a practical standpoint, this means that a larger portion of this fund’s investible assets are in companies like Overstock (OSTK) and Microsoft (MSFT). While this fund presents the same decoupling risks, it could likely weather the storm better if cryptocurrencies are not a foundational part of whatever our digital economy will look like in the future.
Pure Plays (Not Yet Crypto ETFs)
Two investments, which represent purer plays in the crypto space, are Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE). These investment trusts directly purchase cryptocurrencies and hold them on behalf of unitholders. (The SEC denied a request by Grayscale to convert GBTC to a crypto ETF, although Grayscale has committed to continuing that effort.) Both are multi-billion-dollar funds and offer returns that will generally be highly correlated with the performance of the underlying crypto. But this ease of access comes at a price. The expense ratios for these funds come in at a whopping 2% while offering no active management or other significant value to unitholders other than the ability to monitor your crypto investments within your broader portfolio (instead of setting up a secondary portfolio through a service like Coinbase).
Participation in the novel digital economy will vary by investor, with some opting to use low-cost FinTech ETFs supplemented by crypto trusts or direct crypto holdings, and others using the funds above to gain blended exposure to both. Finding the best crypto ETF is going to be a matter of how much direct exposure you want to cryptocurrencies and how actively you’re willing to manage that.