Web3 ETFs Will Spur Ecosystem Support and Growth, Industry Pros Say

More ETF companies will look to launch Web3 ETFs in the coming months as the trend offers access to crypto, but with a distinct brand, according to industry professionals.

“The ETF business is all about finding a category that can acquire assets,” Permission.io CEO Charlie Silver said. “It’s more marketing than anything else.”

Silver previously co-founded Onramp Invest, Blockforce Capital and Reality Shares, the latter of which created one of the first blockchain equity ETFs — the Siren Nasdaq NexGen Economy ETF (BLCN) — in 2018.

Today, the Web3 theme is more attractive and “palatable” to regulators, lawmakers and institutional investors than pure cryptocurrencies, according to Silver. He called the internet “the most important technological innovation in the history of mankind,” noting that investors will be interested in investing in the web’s future.

“Crypto is obviously very popular, but it’s still got problems amongst institutional investors,” he explained. “…Web3 is a chance to get involved with the next innovations in the internet — even though crypto is a huge part of Web3 — without calling it crypto.”

The first of many?

Simplify Asset Management filed last week to launch a Web3 ETF that would invest in companies focused on or expected to benefit from “shifting the bases of technology infrastructure from a centralized self-hosted hardware infrastructure to a decentralized cloud infrastructure,” a regulatory filing states. 

The US Securities and Exchange Commission (SEC) has not yet permitted an ETF directly investing in bitcoin to come to market. Regulators allowed bitcoin futures-based ETFs to launch in October, however.  

But Tad Park, CEO of Volt Equity, which is the subadviser for the proposed Simplify Volt Web3 ETF (WIII), said that there is a whole side to crypto that doesn’t focus on bitcoin and its place as digital gold.

“You’re really investing in the ideas and the software and the future potential of what this can be used for,” he said of Web3. “…We really want to be first in providing that kind of access.”

Silver predicts that there will be about half a dozen Web3 ETFs in the next six months, adding that he expects one of the largest ETF issuers, such as BlackRock or State Street Global Advisors, to get involved. Such funds will “wake up” the venture capital and private equity communities to pay more attention to the space, he added.

A growing space

In addition to companies focused on Web3, the proposed Simplify fund would also invest in metaverse companies, according to the fund’s preliminary prospectus.

Several metaverse ETFs are already trading in the US, including Roundhill Investments’ Roundhill Ball Metaverse ETF (META), which launched in June and has $923 million in assets. In addition, fund managers First Trust and ProShares filed for metaverse ETFs in December 2021.

Defiance ETFs launched its Digital Revolution ETF (NFTZ) in December. The fund is designed to offer exposure to the NFT, blockchain and cryptocurrency ecosystems by investing in NFT marketplaces and issuers. 

“If there’s an NFT ETF there’s DEF going to be a Web3 ETF,” Bloomberg Intelligence Analyst Eric Balchunas said in a Jan. 3 Twitter post. “Not endorsing either but this industry leaves no buzzword behind.”

Industry watchers have previously said that the equity ETFs within the crypto and blockchain technology segments have similar holdings, including non-pure play stocks.   

But Volt’s Park noted that Amplify Investments’ Transformational Data Sharing ETF (BLOK) — the largest blockchain ETF, with about $1.1 billion assets under management — added crypto firms, such as mining companies, over time. 

“It doesn’t have to be pure-play from day one,” he said. 

Volt Equity will be monitoring Web3 companies that become public, Park added, and investing in such businesses may spur more to move toward the space.

“If they know that there’s more and more institutional interest in this whole field,” he said, “they may be more open to becoming part of it, using more Web3 and supporting the ecosystem.”

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