Ben Strack

The largest blockchain ETF has bolstered its positions in bitcoin miners in recent months after the fund’s allocations to such companies hit an all-time low at the end of 2022.&nbsp;&nbsp;



Outside of the mining sector, the managers of Amplify Investments’ Transformational Data Sharing ETF (BLOK) are watching how regulatory questions could impact Coinbase, and also have an eye on companies such as Overstock and Nubank.&nbsp;



BLOK launched in January 2018 and has about $460 million assets under management. The fund has returned 33.3% year to date, according to ETF Database. Those returns rank it 73rd among all ETFs so far in 2023, the data indicates.



<h2 class="wp-block-heading">More money toward miners</h2>



Mike Venuto, who co-manages BLOK with Dan Weiskopf, <a href="https://blockworks.co/news/crypto-etfs-sank-in-2022">told Blockworks in December</a> that the fund’s exposure to miners was the lowest it had ever been.



But Weiskopf said this week that the fund’s allocation to mining firms rose from about 9.5% in December to 16.5% at the end of January. BLOK now has roughly 21% of its assets in such companies, he added.



“We use the miners to play offense and defense,” Weiskopf said. “We became more optimistic around the price action of bitcoin given how oversold it had become.”



The fund’s allocation to miners peaked at roughly 30% in October 2021 — just weeks before bitcoin’s price hit an all-time high of nearly $70,000.



BLOK’s top holding in the mining space — at 4.84% — is Riot Platforms, given its size, balance sheet and success in aggressively building out its operations, the portfolio manager said. The company, which has the bulk of its operations in Texas, had a hash rate capacity of 10.5 exahash per second (EH/s) at the end of April.



Riot’s stock price is up 258% so far in 2023.



The Amplify fund also has a 3.66% position in CleanSpark — a holding that adds some geographical diversity, Weiskopf noted. The company, which revealed Thursday it has bought 12,500 new bitcoin mining machines, has facilities in New York and Georgia.&nbsp;



BLOK added to its position in Canada-based Hive Blockchain Technologies earlier this year as well. Weiskopf added that he and Venuto continue to monitor Hut 8 Mining — a company set to merge with US Bitcoin Corp. The fund currently allocates 2.01% to Hive and 2.98% to Hut 8.&nbsp;&nbsp;



<h2 class="wp-block-heading">Other top holdings to watch</h2>



BLOK’s top holding overall is MicroStrategy, at 4.92%. The business intelligence firm is the largest publicly-traded holder of bitcoin, as its stack has grown to about 140,000 BTC.&nbsp;



Weiskopf said he views MicroStrategy as a proxy for bitcoin.&nbsp;



The company’s stock was up 109% year to date, as of Thursday morning. Bitcoin is up about 62% in that span.&nbsp;



Weiskopf also noted the rise of Ordinals, an NFT protocol that <a href="https://blockworks.co/news/cant-ignore-bitcoin-nfts">launched on Bitcoin mainnet</a> in January and contributed to <a href="https://blockworks.co/news/bitcoin-transactions-record-ordinals">bitcoin transaction surges</a> last month.&nbsp;&nbsp;&nbsp;



“I feel like bitcoin is out of the bear market now and in a much more bullish stance at this point,” he said.&nbsp;&nbsp;



BLOK managers are also keeping an eye on Coinbase, which <a href="https://blockworks.co/news/coinbase-q1-stats-stand-out">reduced its net loss</a> from $557 million during the fourth quarter of last year to $79 million in the first three months of 2023.



The blockchain ETF trimmed its position in the company by between 50 and 100 basis points after <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">Coinbase received a Wells notice from the SEC</a> in March— a regulatory action Weiskopf said was not unexpected. BLOK currently allocates 3.97% to the crypto exchange.&nbsp;&nbsp;&nbsp;



“They’re trying to work with regulators on a constant basis, and it’s almost volunteering to be abused,” he said. “But they’re doing it to push forward the need for regulation in this space. It’s just so early [to know] how all this plays out.”&nbsp;



BLOK has recently added to its position in Nu Holdings, the parent company of Brazilian fintech bank Nubank, as well as internet retailer Overstock.com, which has a portfolio of blockchain companies run by venture capital firm Pelion Venture Partners.&nbsp;



<h2 class="wp-block-heading">Muted YTD returns compared to some competing funds</h2>



BLOK has underperformed several other crypto-related ETFs so far in 2023.&nbsp;&nbsp;



Valkyrie’s Bitcoin Miners ETF (WGMI) has posted year-to-date returns of about 147%, <a href="https://etfdb.com/compare/highest-ytd-returns/">according</a> to ETF Database. The VanEck Digital Transformation ETF (DAPP) and the Bitwise Crypto Industry Innovators ETF (BITQ) are up 118% and 108%, respectively, so far in 2023.&nbsp;



Actively managed BLOK, meanwhile, has returned 33.3% year to date.



WGMI has <a href="https://valkyrie-funds.com/wgmi-holdings/">allocations</a> of roughly 10% each in Riot Platforms, CleanSpark and Marathon Digital. The top holding of DAPP and BITQ, Applied Blockchain Inc., accounts for slightly above 10% of the net assets of each of those funds.&nbsp;&nbsp;&nbsp;



BLOK has opted against high concentrations in the fund’s top holdings, Weikopf said.



“While we might — in certain cases on the up — give up some of the return, I think diversification over time has a benefit over time over a very concentrated portfolio that has massive execution risk,” he said. 



Venuto <a href="https://blockworks.co/news/amplifys-blok-etf-flocks-to-high-quality-names-amid-downturn">previously told Blockworks</a> that BLOK is willing to “hide out in high-quality names that are tangentially participating in the blockchain industry,” such as IBM, during crypto market turbulence.



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Inside BLOK ETF: ‘We Use the Miners to Play Offense and Defense’

<div id="highlights-block_6319cf930ce42" class="highlights">
 <ul>
 <li>Amplify Investments’ Transformational Data Sharing ETF (BLOK) is down roughly 50% year to date</li>
 <li>Though Defiance is bullish on crypto long-term, CEO says being short crypto firms will provide the best downside protection in the current environment</li>
 </ul>
 
</div>



ETF provider Defiance has launched a fund that bets against the blockchain industry by holding short positions in the largest blockchain ETF in the US.



As the industry grapples with the downturn in crypto and traditional markets, the Defiance Daily Short Digital Economy ETF (IBIT) seeks daily inverse returns of Amplify ETFs’ Transformational Data Sharing ETF (BLOK).



The fund group <a href="https://cms.blockworks.co/defiance-plans-etf-that-bets-against-crypto-industry/" target="_blank" rel="noreferrer noopener">had revealed plans</a> to launch IBIT in April.&nbsp;



The new fund enters short positions of the actively managed BLOK fund, which includes top holdings Core Scientific, Silvergate, Accenture, IBM and Overstock.com, as of Wednesday.



BLOK has returned about 26% since its inception in 2018, but the fund is down roughly 50% year to date and about 15% in the past month. The ETF has about $540 million in assets.



Though Defiance remains bullish on the growth of crypto over the next few years, CEO Sylvia Jablonski said in a statement, the executive pointed to the recent layoffs and revenue losses around the industry.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We believe shorting positions such as Coinbase, Galaxy and Robinhood, along with those involved in the metaverse — like Meta and Roblox — will provide the best downside protection in the current environment,” she added.</blockquote>



Coinbase is down about 73% year to date, while Galaxy Digital and Robinhood’s stock price has dropped roughly 70% and 47%, respectively, so far in 2022.



When the Federal Reserve stops hiking interest rates and inflation starts to wane, investors are likely to dip their toes back into crypto, Jablonski told Blockworks.



“Investors are taught to have well diversified portfolios, a barbell approach, or hedges for tough times,” she said in an email. “Having a product available to cover the crypto space in this same spirit could be very advantageous to traders and investors alike.”



Defiance has seven ETFs trading in the US with roughly $1.2 billion in combined assets, according to ETF.com. Its largest is its Next Gen Connectivity ETF (FIVG), which has gathered nearly $1 billion in assets since its March 2019 launch.



The firm in December launched the <a href="https://www.defianceetfs.com/nftz/" target="_blank" rel="noreferrer noopener">Defiance Digital Revolution ETF</a> (NFTZ), which invests in companies with exposure to NFTs, blockchain and cryptocurrency. Like BLOK, NFTZ has Silvergate as a top-five holding, alongside Marathon Digital, Draftkings, Cloudflare and Robinhood.&nbsp;



NFTZ, which has gathered just $6 million in assets during its time on the market, is down about 63% so far this year.



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Defiance Debuts ETF To Short Blockchain Companies

<div id="highlights-block_62b9da247e022" class="highlights">
 <ul>
 <li>Top holdings in the Amplify Transformational Data Sharing ETF (BLOK) are IBM, Overstock.com and CME Group</li>
 <li>Miners make up about 17% of the fund today, which is down from 25% a year ago</li>
 </ul>
 
</div>



The portfolio manager of the largest blockchain ETF in the US is reducing the portfolio’s exposure to names trading with the price of bitcoin amid the current market conditions.



Bitcoin hovered around $21,000 Monday morning while ether stood at roughly $1,200 — down roughly 70% and 75%, respectively, from last November’s all-time highs.



Crypto companies are facing <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">liquidity issues</a>, and some are freezing or putting restrictions on withdrawals. Certain bitcoin miners are <a href="https://cms.blockworks.co/crypto-miner-bitfarms-sells-half-its-bitcoin-to-reduce-debt-boost-liquidity/" target="_blank" rel="noreferrer noopener">selling BTC</a> they intended to hold to shore up their balance sheets.



Michael Venuto, portfolio manager of Amplify Investments’ Transformational Data Sharing ETF (BLOK), has positioned the fund defensively as crypto markets have soured.


<div class="wp-block-image">
<figure class="alignright size-medium"><img loading="lazy" decoding="async" width="281" height="300" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg" alt="Amplify Investments' Michael Venuto" class="wp-image-23421" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=281 281w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=959 959w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=241 241w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=244 244w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=205 205w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=75 75w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=47 47w, https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Mike-Venuto-e1656349294681-281x300.jpg?w=1356 1356w" sizes="auto, (max-width: 281px) 100vw, 281px" /><figcaption>Amplify Investments&#8217; Michael Venuto</figcaption></figure></div>


“We’re always looking to participate in the beta of the blockchain industry, but we’re also willing to hide out in high-quality names that are tangentially participating or doing it on the edges,” Venuto said.



BLOK, which launched in January 2018, currently has roughly $530 million in assets — off its high of more than $1 billion.



The fund is down nearly 52% year to date, according to FactSet data. Meanwhile, the index-tracking Siren Nasdaq NexGen Economy ETF (BLCN) and the First Trust Indxx Innovative Transaction &amp; Process ETF (LEGR) are down roughly 38% and 20%, respectively, the data shows.&nbsp;&nbsp;



The Amplify ETF’s <a href="https://amplifyetfs.com/blok-holdings/" target="_blank" rel="noreferrer noopener">top five holdings</a>, as of Monday, are IBM, Overstock.com, CME Group, Core Scientific and Accenture. Names more synonymous with the crypto space, such as Microstrategy and Coinbase, rank eighth and 11th in terms of weighting within the portfolio.&nbsp;&nbsp;



Miners, which made up about 25% of the portfolio a year ago, amount to about 17% of the fund today, Venuto added. In addition to Core Scientific, the fund still holds miners such as Hive Blockchain Technologies, Riot Blockchain and Hut 8 Mining. BLOK exited its position in <a href="https://northerndata.de/en/" target="_blank" rel="noreferrer noopener">Northern Data</a> in the fourth quarter of last year due to supply chain concerns.&nbsp;&nbsp;&nbsp;



“There’s a trend toward camels instead of unicorns, and it’s going to stay that way until we get clarity from our regulators or clarity on what our Fed is going to do,” Venuto said. “Can they carry the water through the desert? Those are the ones that we’re looking for.”



Blockworks spoke with Venuto to learn, in more detail, how he is positioning the portfolio amid the turmoil and what trends he is seeing in the space.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Blockworks: What do you make of the state of the blockchain industry right now? 



Venuto: This has obviously been a challenging environment because it’s very hard to talk about blockchain without having some sort of bitcoin or cryptocurrency beta.



There’s a lot of noise to the beta of the price movements of the underlying protocols and tokens, but in reality, there’s an enormous amount of work being done to actually create real applications and real use cases for this technology.&nbsp;



They’re not scared by the price movements; everybody expects volatility in a new technology, so I see a lot of optimism and a lot of investment going on.&nbsp;



Blockworks: How do you go about managing BLOK in this type of environment?



Venuto: This isn’t our first winter. We launched four years ago, and in the world of blockchain, that makes us like a grandma.



The first winter we went through was in the second half of 2018 and during that time we did exactly what we’re doing right now, which is, we moved to higher-quality companies like IBM and Accenture that are using blockchain but are not the high-flying names that are going to go up 300% when bitcoin moves.



We still have those [companies], but a year ago they were 50% of the portfolio. Now they’re about 25%.



Right now, [CME] is one of the biggest positions in BLOK because they participate in the volatility. They’re the one-stop-shop to be long or short bitcoin for traditional finance.



Blockworks: How have you adjusted your outlook on miners?



Venuto: Back in December, when we started to see the weakness in crypto, we started to look at our portfolio of miners — because miners are always a big part of a blockchain fund.



We’ve really honed in on the [miners] we think can survive a crypto winter or can access traditional finance markets so that they don’t have to sell off bitcoin and panic.



Today we’re down to owning about half of the publicly traded miners because we spent the time talking with a lot of them, doing the on-site visits and deciding which ones we think can access markets.



You start to move toward the higher-quality ones, meaning the ones that have a lot of cash on their balance sheet or have already secured traditional finance exposure.



Blockworks: What specific companies or sectors do you have your eye on?



Venuto: New York Community Bank is now working with Figure, which is a private company, to generate mortgages on the blockchain. They’re getting it done in five hours instead of five weeks. That gives them a huge competitive advantage over Wells Fargo or whatever.



We’re also this year starting to add some of the metaverse-type names, such as <a href="https://www.roblox.com/" target="_blank" rel="noreferrer noopener">Roblox</a>. We have a tiny position in Facebook because I’m trying to figure out if they’re going to lead here or not.&nbsp;&nbsp;



A recent purchase for us was <a href="https://nubank.com.br/en/" target="_blank" rel="noreferrer noopener">Nubank</a>…They made a big announcement making transactions in crypto available to all its users in Brazil.



A backer of Nubank is Warren Buffett…so the guy who calls it rat poison is backing this amazing fintech company that’s servicing all these investors in Brazil and making crypto a very real thing.&nbsp;&nbsp;



We’re constantly looking for names in the [non-fungible token] space. Nothing has materialized yet in the public markets that we feel comfortable with.



Blockworks: How does the level of BLOK’s assets under management, which has been cut in half in recent months, affect the way you run the strategy?



Venuto: It actually makes things easier. We’ve always been on the cutting edge of companies — we were able to invest in small-cap companies — however at $1 billion in opportunity set, you’ve got to be a little bit more diverse to make sure you maintain liquidity.



Am I happy being down 50%? No. Do I feel like our active management has made a difference? Yeah, absolutely. We are more positioned conservatively right now with things like CME…and we’re still getting very nice beta on the up days, primarily because of direct exposure to bitcoin through the Canadian spot ETFs out there.



Blockworks: How could the approval of a spot bitcoin ETF impact BLOK?



Venuto: I’m all for a spot bitcoin ETF in the US and I think it could happen amazingly quickly. It could literally happen the day after the administration says this is what bitcoin is.



I expect they’re going to come out and say something along the lines of [bitcoin’s] not a currency, it’s a commodity asset…but as an investment, even though it’s not a security, it’s still subject to the same disclosure rules as a security.&nbsp;



What does that change for BLOK? Honestly nothing. When [the ProShares Bitcoin Strategy ETF (BITO)] <a href="https://cms.blockworks.co/bito-on-track-to-be-first-fund-in-history-to-hit-1b-in-aum-in-two-days/" target="_blank" rel="noreferrer noopener">came out and got $1 billion</a>, BLOK was taking in money every day during that time because we were in a bull run.”



BLOK will be an infrastructure play on the technology and the public companies, and a spot bitcoin ETF will be a play on owning the biggest protocol. I see no risk for us. I see only upside because it will bring the [space] up, and I will probably own it in BLOK.



Blockworks: How long do you expect the so-called crypto winter to last?



Venuto: The current situation needs either regulation or it needs the Fed to stop trying to raise rates. Once they say anything dovish again, I would expect the crypto cycle to turn right back on.



We need regulatory clarity. It’s funny because we all say regulators need to come in. I don’t really want them in — I just want them to say this is how we’re going to treat [crypto], here are the rules and now you can go play.&nbsp;



We’re basically all playing chess on a board that doesn’t have a finite amount of squares. You don’t know what you can get in trouble for, and institutions don’t need that risk.



This interview has been edited for length and clarity.



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