The world of exchange-traded funds is rich and varied, so it should be no surprise to see a blockchain ETF — Reality Shares Nasdaq Blockchain Economy Index (NASDAQ:BLCN) — come to the market early in 2018.
But, as promising as this may sound, should investors really care about an ETF like this?
What You Need to Know About BLCN
As one of the first blockchain ETFs, the timing of the fund’s inception is quite convenient. BLCN is able to ride the cryptocurrency craze, for better or worse, as bitcoin becomes a household name and more people learn how to mine it and other cryptocurrencies.
Although it is often lumped in with conversations about bitcoin, there is a clear distinction between the blockchain and cryptocurrencies, and BLCN’s holdings emphasize companies that focus on the former.
Using the broadest of descriptions, the blockchain is a secure system of digital “blocks” that link together to validate a transaction and record events. Potential uses include documenting medical information, economic transactions, and supply and logistics tracking.
Bitcoin, however, is a decentralized form of digital currency that uses the blockchain system. It takes advantage of the economic possibilities of the blockchain’s design but it does not fully represent what the blockchain is capable of as a multifaceted system.
The Pros and Cons of This Blockchain ETF
Bitcoin recently suffered an astronomical loss at the start of the new year, dropping from nearly $17,000 on Jan. 5 to under $6,000 on Feb. 5 amid widespread market turmoil. It is now back above $11,600.
However, despite the volatility of bitcoin and other cryptocurrencies, it’s important to remember that as a blockchain ETF, BLCN is not necessarily directly associated with these risks.
Instead, BLCN is a passively managed fund that follows the Reality Shares Nasdaq Blockchain Economy Index. Simply put, that means this fund tracks companies expected to benefit the most from blockchain technology, with the overall objective to prosper from their long-term growth potential.
That leads to an assortment of top holdings like Microsoft Corporation (NASDAQ:MSFT), Nvidia Corporation (NASDAQ:NVDA) and Overstock.com Inc (NASDAQ:OSTK), each of which has an allocation that is slightly above 2%.
Accordingly, its distance from cryptocurrencies themselves is both its greatest advantage and possibility its greatest weakness, depending on how you look at it.
For example, according to Motley Fool writer Jordan Wathen’s assessment of the ETF, “this index is inherently imperfect. It’s really a tech ETF by another name, with a handful of online retailers and banks mixed in for good measure.”
Each of the big-name companies in its near-60 holdings has big plans for blockchain technology. For instance, take a look at what Microsoft plans to do with its cloud technology Azure and blockchain. Whether moves like this will help boost each company’s growth potential in a significant way is yet to be determined.
Bottom Line on BLCN
Ultimately, it’s possible that BLCN will become “just another tech ETF” or it could become something more — only time will tell as the hype behind cryptocurrencies dies down and the focus on the blockchain itself becomes stronger.
Robert Waldo is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.