Blockchain ETFs Are Here...Sort Of!


Two different blockchain ETFs launched today so I guess they are both first to market? One is the Amplify Transformational Data Sharing ETF (BLOK) and the other is the RealityShares NASDAQ NexGen Economy ETF (BLCN). As I mentioned the other day, neither fund's name has the word blockchain in them which was dictated by the SEC.

Interestingly BLOK is actively managed while BCLN is an indexed product.

These have been widely anticipated but are from from pure plays, they both have heavy exposure to global tech giants who one way or another are involved in the space. Having IBM, Overstock (OSTK) and Cisco (CSCO) is legitimate, these companies are involved developing and implementing blockchain solutions but diversified mega cap tech companies are a long long way from growth in blockchain moving the needle for earnings and revenues. There are some interesting proxies in the funds like CBOE (CBOE) and Square (SQ) both of which are client holdings and there are some less interesting proxies like Goldman Sachs. BLOK looks like it has 20% in financial stocks and BCLN also has quite a few financial names.

This is a space you should want to learn more about, even if you don't ever invest, and I would encourage clicking through to learn about the funds.

The reason the funds are not pure plays is that most of the stocks that would be pure plays are nano caps. The largest player in the space, pure player, might be Hive Blockchain Technologies (HVBTF), it is a top ten holding in both funds and it has a market cap that is less than $500 million. If that is the largest market cap then you can imagine how small any of the other pure plays will be. Do a Google search for blockchain stocks and you will find articles touting names well under $100 million. I mentioned in previous posts about owning a blockchain stock but did not disclose the name for being so small, well with the ETFs trading, it makes more sense to disclose, it is Hive, I bought it a couple of days after its reverse merger in September. I have a decent gain but the name has been much higher since I first bought. My hope is to hold it long term, I think it can go much higher but is it wildly risky and for now, not suitable for clients and my position is tiny.

It is obvious that the blockchain space will evolve one way or another, I assume its evolution will be positive as blockchain solutions proliferate. If that actually happens then pure play companies will get bigger and you'll see these funds more narrowly reflect the emergence of the technology.

BLOK has a little exposure to some of the big momentum names from 2017, most notably Alphabet (GOOG). BCLN has quite a bit more of those type of names like Tencent (TECHY) Alibaba (BABA), Amazon (AMZN) and Facebook (FB). While there is no way to know whether the names that outperformed on the upside last year would go down more than the broad market but BCLN is far more vulnerable to that outcome.

The names in the previous paragraph are obviously prominent in the broader tech sector ETFs so if you use some combo of broad funds like XLK combined with narrower ETFs and would add one of the blockchain ETFs into the mix you should do some spreadsheet work to figure out how much Nvidia (NVDA), as an example, you own in your various funds.

The funds look pretty useful to me based on what they own. A lot of the stocks are either what I own for clients or themes I target for clients. They can probably benefit from blockchain maturing into even half of its promise but for now they clearly are not pure plays, you will need to buy a stock for that and again that is wildly risky (repeated for emphasis). The overlap though to broad based tech is enough for me to think anyone interested in these funds would be better integrating them with other similarly narrow, thematic ETFs where the holdings overlap isn't so heavy or incorporating other individual stocks along with a block chain fund. To be clear, I think BCLN and BLOK are fairly broad based for now. If you disagree then you would view them as being narrow-based.

While we are almost in the neighborhood, a quick update on Bitcoin. I Tweeted this morning that the decline feels more like a curiosity than a panic. I disclosed a trade I made in the Grayscale Bitcoin Trust (GBTC) in December, it worked out well but I sold early, thinking I would have a chance to get back in. I still think that, I have not gotten back in for it not feeling like a panic. If Yahoo Finance had taken down it's crypto page, that would certainly be a clear indicator but I don't expect it to be that easy.