Ben Strack

<div id="highlights-block_623223ed68577" class="highlights">
 <ul>
 <li>Digital Funds founder Michael Willis said he expects digital assets to “replace the financial legacy system”</li>
 <li>The company plans to file for a spot bitcoin ETF and other crypto-focused products</li>
 </ul>
 
</div>



A new digital asset manager has filed for its first ETF, which seeks to offer exposure to the S&amp;P 500 Index while also providing limited access to bitcoin.&nbsp;



The Digital Funds S&amp;P 500 Bitcoin 75/25 Index ETF would invest roughly 75% of its assets in large US companies within the S&amp;P 500 Index and about 25% of its assets in bitcoin futures contracts, according to a March 11 regulatory disclosure.



Amid unusual market conditions for bitcoin futures contracts, the fund may invest in the Grayscale Bitcoin Trust (GBTC) or through bitcoin ETFs trading in other countries, the filing states. The ETF does not invest directly in bitcoin.



Michael Willis, who is slated to serve as the ETF’s portfolio manager, called bitcoin “really volatile,” noting that the S&amp;P 500 exposure provides more stability to a bitcoin portfolio.



“The apex asset for Wall Street is the S&amp;P 500 Index, and the apex asset for the digital world is bitcoin,” he told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“It’s our marrying of the two investment ecosystems that are out there in two broad categories.”</blockquote>



A small allocation to bitcoin has historically improved the risk/return characteristics of a diversified portfolio, said Nathan Geraci, president of <a href="https://etfstore.com" target="_blank" rel="noreferrer noopener">The ETF Store</a>. Given the volatility of bitcoin, he added, appropriate position sizing and disciplined rebalancing are critical to realize these potential benefits.



Geraci likened Digital Funds’ proposed ETF to Simplify ETFs’ US Equity PLUS GBTC ETF (SPBC), which can allocate up to 15% in GBTC. The fund, which launched last May, has grown to roughly $100 million in assets under management.



“My sense is there’s a limited audience for these types of products, as I think most advisers and investors are inclined to pursue a standalone allocation to bitcoin,” Geraci said. “The ETFs bundling various asset classes typically have an uphill climb to success.”



<h3 class="wp-block-heading">Digital assets are “the future”</h3>



Willis founded Digital Funds in December. He had formerly founded Wall Street financial technology company ONEFUND and has been the lead portfolio manager for the Index Funds S&amp;P 500 Equal Weight mutual fund since its inception in 2015.



Prior to that, Willis worked in the investment banking industry for UBS Financial Services, Paine Webber and Smith Barney.



Digital Funds’ products will all be focused on digital asset investments, Willis told Blockworks. The company is planning to file for a few additional products, including a spot bitcoin ETF.



The Securities and Exchange Commission <a href="https://cms.blockworks.co/will-bidens-executive-order-speed-up-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">has not yet approved</a> an ETF that would invest directly in bitcoin but has permitted those investing in bitcoin futures contracts to launch. Willis said he does not expect the agency to approve a spot bitcoin ETF anytime soon. 



Still, Willis said he expects digital assets to “replace the financial legacy system.” Though the first $2 trillion or so in assets that have entered the space have been mostly unregulated, he noted a wave of regulated digital investment products is coming.



“You have immediate settlement, you have 24/7 trading, you have programmable tokens,” he said. “It’s the future, but we think investors want a safe and secure way of getting into that space. All of our products will be registered with the SEC, and we think that’s the key to unlocking the larger assets.”



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Digital Funds

New Digital Asset Manager Files for First ETF

<div id="highlights-block_61a902a23e70c" class="highlights">
 <ul>
 <li>The Defiance Digital Revolution ETF (NFTZ) trades on the New York Stock Exchange and has an expense ratio of 65 basis points</li>
 <li>New fund joins a crowding field of crypto- and blockchain-related equity offerings in the US as issuers await approval of spot bitcoin ETFs</li>
 </ul>
 
</div>



Defiance ETFs has added to the growing list of blockchain-related equity offerings that do not invest in crypto assets directly, though the firm intends for the fund to focus on NFTs a bit more than its competitors.



<a href="https://www.defianceetfs.com/NFTZ/" target="_blank" rel="noreferrer noopener">The Defiance Digital Revolution ETF (NFTZ)</a> launched on Thursday and trades on the New York Stock Exchange. The new product, which has an expense ratio of 65 basis points, offers investors exposure to the NFT, blockchain and cryptocurrency ecosystems by investing in NFT marketplaces and issuers.&nbsp;



NFTZ tracks the BITA NFT and Blockchain Select Index, which consists of the stock of companies that are building a platform or developing technology to use NFTs, trading platforms, mining or banking services in the crypto space, as well as blockchain-related technology. It may also include businesses that intend to become involved in these spaces.



The fund’s top five holdings are Silvergate, Cloudflare, Northern Data, Bitfarms and Playboy owner PLBY Group. The latter company unveiled an NFT collection — <a href="https://playboyrabbitars.com" target="_blank" rel="noreferrer noopener">Playboy Rabbitars</a> — in October.&nbsp;



Defiance currently has eight other ETFs trading in the US with combined assets of nearly $1.7 billion, according to ETF.com. Its largest is the $1.3 billion Defiance Next Gen Connectivity ETF (FIVG), which it launched in March 2019.



<h2 class="wp-block-heading">‘Bigger than the internet’</h2>



Sylvia Jablonski, Defiance’s co-founder and chief investment officer, told Blockworks that NFTs will be bigger than the internet.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“NFTs are special; they have created this cultural revolution,” she said. “They are the key to everything that is or will be the metaverse, [and] digital tokens will represent land ownership in the metaverse.”</blockquote>



NFTs reward creators of content, art and data and allow buyers to participate in a particular project, Jablonski explained. These tokens will represent fashion houses like Gucci and Nike, she noted, as well as tickets to events in the real world and metaverse.&nbsp;



Investors of stocks benefit when those stocks go up, and the company benefits in that they can use the funds it raises to take measures to boost the value of the stock, the CIO added.&nbsp;



“With NFTs, the value and direction of the asset is determined both by the creator and the investor,” Jablonski said. “People like to participate in something, and I think that special aspect is what will make this space essentially grow to be huge.”



<h3 class="wp-block-heading">Just another blockchain ETF?</h3>



NFTZ adds to the growing list of crypto or blockchain-related equity ETFs in the US as regulators <a href="https://cms.blockworks.co/when-will-the-sec-approve-a-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">have not yet approved ETFs</a> that would invest in bitcoin and other crypto assets directly.&nbsp;



The largest crypto equity ETF in the US is Amplify Investments’ Transformational Data Sharing ETF (BLOK) which has grown to nearly $1.7 billion in assets under management since its January 2018 launch. 



A handful of similar products have launched this year, including the $130 million Bitwise Crypto Industry Innovators ETF (BITQ), the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT), the Volt Crypto Industry Revolution and Tech ETF (BTCR) and the Invesco Alerian Galaxy Crypto Economy ETF (SATO).&nbsp;



The key difference of NFTZ to its competitors is that Defiance invests in stocks specifically involved in the issuance, creation and commercialization of NFTs, Jablonski said.



While some of the competing offerings are actively managed, the Defiance co-founder added that providing transparency for the investor is a main goal of the firm.



“We feel our investors should see what we hold, when and how we select holdings based on index rules,” she said. “It also helps keep efficient markets so that clients and market makers are able to trade or hedge with full transparency.”



Nathan Geraci, president of The ETF Store, said that due to the lack of pure-play companies offering exposure to the crypto space, a lot of the ETFs in the segment end up looking similar.



“Given the limited investment universe,” he told Blockworks, “I think NFTZ will have a difficult time differentiating itself from other blockchain ETFs at this early juncture.”



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Defiance

Defiance Co-Founder: NFTs Will Be ‘Bigger Than the Internet’

<div id="highlights-block_617996312e2a3" class="highlights">
 <ul>
 <li>VanEck’s ETF will cost 65 basis points compared to the 95bps price of bitcoin futures ETF by ProShares and Valkyrie Investments</li>
 <li>ProShares being first to market was an important advantage as competitors will be facing “a long, uphill slog trying to chase down BITO,” ETF Store president says</li>
 </ul>
 
</div>



VanEck appears to be ready to bring to market its bitcoin strategy ETF after its <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1137360/000113736021000971/ck0001137360-20201231.htm" target="_blank" rel="noreferrer noopener">latest SEC filing</a> on Wednesday, though industry watchers said demand for the offering could be muted compared to similar products that launched last week.



The launch of the VanEck Bitcoin Strategy ETF (XBTF) was slightly delayed, though the firm declined to comment on why. VanEck had <a href="https://www.sec.gov/Archives/edgar/data/0001137360/000113736021000952/vaneckbitcoinstrategyetf48.htm" target="_blank" rel="noreferrer noopener">filed a new date on </a>Tuesday, stating that the filing was expected to become effective on Wednesday.



Bloomberg Intelligence ETF Analyst Eric Balchunas said in a Twitter post that the latest filing means the ETF will likely start trading on Thursday or Friday.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">VanEck has officially &#39;gone effective&#39; (legalese for ready for launch) So good chance <a href="https://twitter.com/search?q=%24XBTF&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$XBTF</a> starts trading Friday poss Thursday. Waiting on listing announcement or company to confirm tho.. <a href="https://t.co/bbFbWatnJ5">pic.twitter.com/bbFbWatnJ5</a>&mdash; Eric Balchunas (@EricBalchunas) <a href="https://twitter.com/EricBalchunas/status/1453398925373755394?ref_src=twsrc%5Etfw">October 27, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“VanEck is excited to offer a long-awaited bitcoin exchange traded product to the U.S. market,” Ed Lopez, Head of ETF Product at VanEck, previously told Blockworks. “We were the first asset manager to file for a bitcoin futures ETF back in 2017, and we are offering what would be the most competitively priced ETF in the category when we come to market.”



A VanEck spokesperson did not immediately respond to Blockworks’ request for comment.



<h3 class="wp-block-heading">What will the demand be?</h3>



The fund is likely to be the third bitcoin futures ETF to launch in the US, following the launches of similar funds by ProShares and Valkyrie Investments last week.&nbsp;



The ProShares Bitcoin Strategy ETF (BITO) has <a href="https://cms.blockworks.co/proshares-bitcoin-futures-based-etf-to-begin-trading-tuesday/" target="_blank" rel="noreferrer noopener">more than $1 billion</a> in assets under management after trading for a week. Valkyrie Investments’ Bitcoin Strategy ETF (BTF) began trading on Friday, <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">trading $10 million in its first five minutes</a> on the market.



While the Valkyrie and ProShares offerings carry a fee of 95 basis points, the VanEck product will cost 65 basis points.&nbsp;



“This ETF should get some looks given its lower price point and VanEck’s reputation, but initial demand will be muted compared to the ProShares offering,” Nathan Geraci, president of The ETF Store, told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“First mover was such an important advantage in this particular category and competitors will be facing a long, uphill slog trying to chase down BITO.”</blockquote>



Dave Nadig, CIO and director of research for ETF Trends and ETF Database, said that VanEck’s differentiator will be price, which will matter but will likely not create “a flood” of inflows.&nbsp;



“In general, later entrants will have a tougher time,” he explained. “Liquidity begets liquidity in the ETF market, especially for access-oriented products like these.”

Bitcoin

VanEck Ready to Launch Delayed Bitcoin Futures ETF

<div id="highlights-block_614b5115fdac5" class="highlights">
 <ul>
 <li>Planned offering, with ticker symbol DEFI, will invest in companies involved in decentralized finance, as well as bitcoin futures contracts, GBTC and Canadian bitcoin ETFs</li>
 <li>Fund could have “fairly significant overlap” in holdings with other blockchain ETFs on the market, president of The ETF Store says</li>
 </ul>
 
</div>



Amplify ETFs is looking to launch an actively managed fund that will invest in companies involved in decentralized finance, or DeFi, as well as cryptocurrency development, utilization and investment.



The Amplify Decentralized Finance &amp; Crypto Exposure ETF will seek to invest at least 40% of its net assets in equity securities issued by companies in the Defi marketplace and 40% in investment instruments that have a high correlation with the price of cryptocurrencies, the firm revealed in <a href="https://www.sec.gov/Archives/edgar/data/1633061/000121390021049135/s133556_485apos.htm" target="_blank" rel="noreferrer noopener">a regulatory filing</a> on Tuesday evening.



It will invest in DeFi blockchain miners, integrators that connect traditional finance to DeFi, companies that develop and distribute applications and software services, including smart contracts and pre-revenue DeFi companies, the filing notes. It will also look to hold companies with more than half of their net assets accounted for by direct holdings of bitcoin, ether, or other liquid crypto assets.



The fund also plans to invest in bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME), as well as pooled investment vehicles in the US and abroad. The fund initially expects to directly invest up to 15% of its total assets in Grayscale Bitcoin Trust (GBTC) and Canadian bitcoin ETFs.



The proposed product will be sub-advised by Toroso Investments and its ticker will be DEFI. The document did not indicate an expense ratio for the planned offering.&nbsp;



A spokesperson for Amplify declined to comment beyond the filing.



“This is yet another iteration of ETFs attempting to offer some semblance of crypto exposure with the SEC failing to approve bitcoin ETFs,” Nathan Geraci, president of <a href="https://etfstore.com/" target="_blank" rel="noreferrer noopener">The ETF Store</a>, told Blockworks. “I would expect fairly significant overlap in holdings with other blockchain ETFs on the market.”&nbsp;&nbsp;



The Illinois-based fund group already offers the Amplify Transformational Data Sharing ETF (BLOK), which is the largest blockchain ETF in the US with nearly $1.3 billion assets under management.



“The universe of publicly-traded companies touching DeFi is limited at this point,” Geraci said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“That said, there’s no question the DeFi space will continue evolving and Amplify will have a head start on the competition by being a first-mover with a perfect ticker symbol.”</blockquote>



Unlike the new proposed offering, BLOK holds almost entirely stocks, and has a broader mandate than the planned DEFI ETF, targeting all sorts of blockchain companies. Its top holdings include Hut 8 Mining, MicroStrategy, Square, PayPal and Marathon Digital, <a href="https://www.etf.com/BLOK" target="_blank" rel="noreferrer noopener">according to ETF.com</a>.&nbsp;



BLOK <a href="https://www.etf.com/BLOK#overview" target="_blank" rel="noreferrer noopener">has returned</a> about 94% in the trailing year, despite seeing returns of about -2.5% in the past month. New ETF registrations typically take 45 days for the SEC to approve or comment, but the review period can be extended at the agency&#8217;s discretion.

Nathan Geraci

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