More Asset Managers May Follow BlackRock Toward Blockchain ETFs

BlackRock has new plans to launch a blockchain ETF could spur large competitors to follow suit, according to industry participants. 

How such products will fare in the crowded space, however, remains to be seen. 

The world’s largest asset manager in a regulatory filing outlined an ETF that would invest in companies involved in the development and usage of crypto technologies. 

“I think this underscores the idea that blockchain technology is now mainstream,” said Sumit Roy, crypto editor and analyst for ETF.com. “I do believe it will encourage competitors like State Street and others to launch similar products.”

State Street, which oversees about $40 trillion of assets, launched a new digital finance division last year. A spokesperson declined to comment on whether its asset management division is considering ETFs in the space. 

A representative for Vanguard, which manages more than $8 trillion in assets —  including $2 trillion in US ETFs — said the company has no plans to pursue a digital assets product. 

“In Vanguard’s view, the risks of investing in cryptocurrencies are high, and the investment case is weak,” the spokesperson said. “Unlike traditional asset classes, such as stocks and bonds, cryptocurrencies lack intrinsic economic value and typically generate no cash flows, such as interest payments or dividends.”

The representative added that the company believes blockchain has potential, noting that Vanguard used blockchain technology to improve its data indexing and digitizing certain currency markets.

David Botset, head of equity product management and innovation at Schwab Asset Management, said clients are increasingly interested in cryptocurrencies. 

Charles Schwab already offers four mutual funds and four ETFs with crypto ties from third-parties.

“We are currently evaluating how and when we could offer our clients additional opportunities for exposure to cryptocurrencies, including opportunities such as spot cryptocurrency or blockchain technologies in the form of an ETF,” Botset told Blockworks in an email.

Invesco, another top-5 ETF issuer, launched the Invesco Alerian Galaxy Crypto Economy ETF (SATO) in October. The asset manager said in September it was teaming up with Galaxy Digital on physically backed digital asset ETFs.

Amplify Investments’ Transformational Data Sharing ETF (BLOK) is currently the largest blockchain-focused ETF. It launched in January 2018 and has grown to roughly $1 billion of assets.

Other large funds in the space include the Siren Nasdaq NexGen Economy ETF (BLCN) and the First Trust Indxx Innovative Transaction & Process ETF (LEGR), which have about $230 million and $150 million of assets, respectively. Most that have launched in the last year have not yet gained significant assets. 

“If I’m in a product development area of an ETF company, and I’m looking at this…[the space is] way oversupplied right now,” Bloomberg Intelligence Analyst Eric Balchunas said. “On the flip side, if you’re a big firm, and you have a relationship with a bunch of advisors and your salespeople go out to talk to them, now that BlackRock has this in their toolkit, maybe you need it, too.”

Will BlackRock overtake BLOK?

Despite BlackRock’s reach, Balchunas said he doesn’t expect its blockchain ETF to instantly dominate markets. 

“Even BlackRock is going to have a tough time unseating the first to market — BLOK is very known, the ticker’s easy, it’s liquid,” Balchunas said.

Despite BLOK’s lead, Roy argued that there has not yet been a “breakout product” in the blockchain category.

“I think BlackRock coming in with the respected iShares brand is going to catch a lot of investors’ attention,” Roy said. 

And the ETF could be one of several steps into crypto investments for the firm, according to Balchunas.

“This is a baby step into I think a larger ETF suite for BlackRock, which would include spot ETFs, crypto baskets,” he said, adding that he doesn’t expect the company to file for a spot bitcoin ETF until one is approved by the US Securities and Exchange Commission (SEC).

A spokesperson for BlackRock, which manages about $10 trillion, declined to comment on future crypto investment products. 

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.