Ben Strack

<div id="highlights-block_61ef27c31cae3" class="highlights">
 <ul>
 <li>“The risks of investing in cryptocurrencies are high, and the investment case is weak,” a Vanguard spokesperson said</li>
 <li>BlackRock’s blockchain ETF may have trouble surpassing the assets of Amplify Investments’ Transformational Data Sharing ETF (BLOK)</li>
 </ul>
 
</div>



BlackRock has <a href="https://cms.blockworks.co/blackrock-files-for-crypto-etf/" target="_blank" rel="noreferrer noopener">new plans</a> 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.&nbsp;



The world’s largest asset manager in <a href="https://www.sec.gov/Archives/edgar/data/1100663/000119312522014777/d286885d485apos.htm" target="_blank" rel="noreferrer noopener">a regulatory filing</a> outlined an ETF that would invest in companies involved in the development and usage of crypto technologies.&nbsp;



“I think this underscores the idea that blockchain technology is now mainstream,” said Sumit Roy, crypto editor and analyst for <a href="https://www.etf.com" target="_blank" rel="noreferrer noopener">ETF.com</a>. “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, <a href="https://cms.blockworks.co/state-street-launches-digital-finance-unit-for-crypto/" target="_blank" rel="noreferrer noopener">launched a new digital finance division</a> last year. A spokesperson declined to comment on whether its asset management division is considering ETFs in the space.&nbsp;



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



“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.&nbsp;



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, <a href="https://cms.blockworks.co/invesco-proposes-crypto-economy-etf/" target="_blank" rel="noreferrer noopener">launched</a> the Invesco Alerian Galaxy Crypto Economy ETF (SATO) in October. The asset manager said <a href="https://cms.blockworks.co/invesco-and-galaxy-team-to-build-suite-of-crypto-etfs/" target="_blank" rel="noreferrer noopener">in September</a> 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 &amp; 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.&nbsp;



“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.”



<h3 class="wp-block-heading">Will BlackRock overtake BLOK?</h3>



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



“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&#8217; attention,” Roy said.&nbsp;



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.&nbsp;



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More Asset Managers May Follow BlackRock Toward Blockchain ETFs

<div id="highlights-block_6160883ae8dad" class="highlights">
 <ul>
 <li>ETFs focused on crypto companies should remain relevant as “leveraged plays” as investors will want exposure to digital assets beyond just bitcoin, Zacks Investment Research ETF director says </li>
 <li>Launches by Invesco and pending launch by Volt Equity come a few weeks before some expect the SEC to approve ETFs that would invest in bitcoin futures contracts</li>
 </ul>
 
</div>



As many investors have yet to see an ETF in the US that invests directly in bitcoin, and fund issuers await SEC approval for futures-based bitcoin offerings, the number of blockchain ETFs that invest in crypto companies continues to grow.



Invesco, which manages more than $1.5 trillion in assets, <a href="https://www.prnewswire.com/news-releases/invesco-launches-digital-assets-and-blockchain-thematic-equity-etfs-in-the-us-301394940.html">launched</a> the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC) on Thursday. The offerings provide equity exposure to global public companies and select investment vehicles in the cryptocurrency and blockchain sectors.



The SEC also approved this week Volt Equity’s proposed Crypto Industry Revolution and Tech ETF (BTCR), which is expected to launch in the next few weeks. The actively managed fund is more bitcoin-focused than others, as it will invest in US and foreign companies with exposure to bitcoin and its supporting infrastructure. It will not invest in Canadian ETFs or private funds and will invest no more than 15% of the fund’s net assets in the Grayscale Bitcoin Trust (GBTC), according to <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1508033/000150803321000022/n1a0921.htm">a regulatory filing</a>.



ETF issuers are seeking different ways to offer investor access to crypto as the SEC has not yet greenlit the dozen or so physically-backed bitcoin ETFs in registration. A range of issuers has<a href="https://cms.blockworks.co/invesco-proshares-plan-to-launch-bitcoin-futures-based-etfs/"> been filing</a> for futures-based bitcoin ETFs, which <a href="https://cms.blockworks.co/who-will-win-the-bitcoin-futures-etf-race/">could be approved</a> as soon as the end of the month.



Futures-based bitcoin ETFs and blockchain ETFs offer more indirect exposure to the market than would a spot product, industry professionals have argued, likely making them <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/">less desirable</a> to some investors.



But John Hoffman, Invesco’s head of ETFs and indexed strategies in the Americas, told Blockworks in an email that the disruptive innovation of blockchain technology is spawning an entirely new industry.&nbsp;



“Bitcoin as a network and bitcoin as an asset are a very important part of this; however, there is an entire infrastructure and ecosystem emerging within and around bitcoin,” he explained. “As we did in traditional commodities and currency markets, we will continue to make it easy and safe for all investors to precisely access all parts of the blockchain ecosystem.”



<h3 class="wp-block-heading">Is the Blockchain ETFs space too crowded?</h3>



The Invesco and Volt Equity products will join a handful of others that invest in crypto companies rather than crypto assets directly. The largest crypto ETF trading in the US is Amplify Investments’ Transformational Data Sharing ETF (BLOK). The product, which launched in January 2018, has $1.2 billion in assets.



SRN Advisors’ Siren Nasdaq NexGen Economy ETF (BLCN) launched one day after BLOK and currently has $273 million. Launching later that month was the First Trust Indxx Innovative Transaction &amp; Process ETF (LEGR) and the Capital Link Global Fintech Leaders ETF (KOIN). LEGR holds $134 million in assets, while KOIN has just $29 million.



Launched earlier this year, the VanEck Digital Transformation ETF (DAPP) and the Bitwise Crypto Industry Innovators ETF (BITQ) currently have $50 million and $76 million, assets, respectively.&nbsp;



“I think it’s a bit too many,” Neena Mishra, director of ETF research for Zacks Investment Research, said of the dozen or so blockchain-related ETFs.



She added that those that launched after BLOK and BLCN have struggled to grow.



“It remains to be seen whether they will be able to gather assets,” Mishra said of the Invesco and Volt offerings. “This is an evolving space and it requires some expertise of the managers, so probably managers which are able to deliver performance … will see some interest from investors.”



Mishra also noted that despite a lot of focus on when futures-based and physically-backed bitcoin ETFs will be approved, blockchain ETFs will likely remain relevant because of the vast landscape of crypto assets that investors may want exposure to.



Eight of the 10 best-performing exchange-traded products in the world this year are European-based crypto funds that track assets such as Ethereum (ETH) Binance Coin (BNB) and Ripple’s XRP, <a href="https://www.wsj.com/articles/funds-overseas-cash-in-on-crypto-boom-11631352602">the Wall Street Journal reported</a> last month.



Offerings like those in Europe will not be available to US investors anytime soon, Mishra said. If the blockchain ETFs from Invesco and others are able to offer exposure to crypto-assets that may be performing better than bitcoin, she added, investors will likely flock to them.  



“When gold does well, gold miners act as leveraged plays on the metal, and at that time we just see a lot of interest from investors in gold mining ETFs too because of the performance,” she said. “Probably these [crypto ETFs] may act as leveraged plays on cryptocurrencies.”

blockchain etf