I don’t have to tell you that the blockchain and the technology’s resultant cryptocurrencies have singlehandedly altered the investment landscape. That said, most traditional investors don’t want to touch the crypto token’s inherent volatility with a 20-foot pole. It would seem like sector-related exchange-traded funds, or blockchain ETFs, offer a happy medium … but this too encounters resistance.
One of the most common criticisms about crypto funds, such as the Bitcoin Investment Trust (OTCMKTS:GBTC), is that it charges an incredible premium against the underlining asset. Last month, I mentioned that GBTC essentially charged a 62% premium over the bitcoin price. With such an outrageous “tax” on the crypto, why not just get bitcoin itself?
Under any other circumstance, it’s a fair and valid question. However, cryptocurrencies operate under a different paradigm. Not only can blockchain reward tokens turn on a dime, security and fungibility are bigger concerns for the crypto markets. For investors who want exposure to cryptocurrencies without dealing with extracurricular activities (ie. exchange hacks, government crackdowns), blockchain ETFs present the next best choice.
Granted, nothing in the investment markets is without risk, and that goes quadruple for cryptocurrencies. But because blockchain ETFs are governed by securities laws, they can’t arbitrarily disappear. This comfort in having government-backed protection, and possibly recourse should things go awry, isn’t cheap; hence, the “outrageous” premium.
It all depends on your investing style and risk tolerance. If you’d like to take the leap, but with some protection, here are three crypto and blockchain ETFs to consider!
Blockchain ETFs to Buy: Amplify ETF TR/Transformational DA (BLOK)
Expense Ratio: 0.7%, or $70 per $10,000 invested annually.
Some countries embrace cryptocurrencies, while (many) others don’t.Take Japan. Many bitcoin proponents consider the island nation to be a Switzerland of sorts for crypto investors. That’s why if you’re looking for blockchain ETFs with long-term upside potential, you need to consider Amplify ETF TR/Transformational DA (NYSEARCA:BLOK).
You’ll find that most blockchain ETFs get their claim to fame by integrating companies that utilize crypto-based technologies. In that regard, BLOK is no different from the rest. What makes this fund stand out, though, is its leverage towards Japanese firms. Names like internet-service providers Digital Garage Inc (OTCMKTS:DLGEF) and GMO Internet Inc (OTCMKTS:GMOYF) are buried deep in our over-the-counter markets. But with BLOK, they’re among the top four holdings.
Digital Garage is a particularly intriguing name due to its disruptive cred. In a society that values unity over individuality, Digital Garage is a positive anomaly. Moreover, the company has forged key alliances with blockchain partners, with an aim to make Japan the top cryptocurrency market. GMO Internet, on the other hand, launched a crypto “forex” exchange last year.
Best of all, if these two companies don’t pan out, BLOK has several top names under its belt. For a speculative but smart shot at cryptocurrencies, BLOK is a prime candidate!
Blockchain ETFs to Buy: Reality Shs ETF/Nasdaq Nexgen Econo (BLCN)
Expense Ratio: 0.68%
Compared to BLOK, Reality Shs ETF/Nasdaq Nexgen Econo (NASDAQ:BLCN) has more of a domestic flavor. The majority of its holdings (45%) are American companies, followed by Japan in a distant second place (14%). Furthermore, BLCN theoretically should be more stable than many other blockchain ETFs. Large-capitalization firms comprise 80% of the BLCN holdings, while micro-caps and small-caps comprise 5% and 2%, respectively.
However, I wouldn’t consider BLCN as merely a “dumbed down” play on the crypto markets. Its top two companies are Intel Corporation (NASDAQ:INTC) and Microsoft Corporation (NASDAQ:MSFT). Both tech giants have performed notably well this year. INTC is up 16.3% since its January opener, while MSFT has gained a respectable 13.4%. In a way, BLCN is the best of both worlds: a fund levered towards established stalwarts but with strong upside potential.
The other advantage to BLCN is that most, if not all, of their holdings have multiple revenue streams. Intel has benefitted recently due to favorable conditions in the semiconductor market. Microsoft made incredible strides in its ongoing rivalry with Apple Inc. (NASDAQ:AAPL). In addition, MSFT, along with Sony Corp (ADR) (NYSE:SNE), dominates the always lucrative video-gaming industry.
With several options at its disposal, BLCN is more likely to come out on top!
Blockchain ETFs to Buy: Innovation Shares NextGen Protocol ETF (KOIN)
Expense Ratio: 0.65%
If you have a little bit of that gambling spirit — and if you’re reading a blockchain ETFs to buy article, you probably do! — check out Innovation Shares NextGen Protocol ETF (NYSEARCA:KOIN). On surface level, KOIN doesn’t sound particularly risky. Virtually all of its holdings are in large-cap companies, two-thirds of which are headquartered in the U.S.
But it’s the top holdings that makes KOIN an exciting play. Curiously, credit-card company Visa Inc (NYSE:V) is in pole position with a 7.31% weighting. Visa has made unfortunate headlines earlier this year, with CEO Alfred Kelly dismissing the crypto sector’s validity. So why on earth would KOIN lean so heavily toward Visa?
Although it’s speculation on my part, I believe the fund architects view the blockchain as an unignorable innovation. With more people increasingly utilizing cryptocurrencies, Visa and its ilk can’t play “too cool for school.” Apparently, American Express Company (NYSE:AXP) saw the writing on the wall. AXP initiated a partnership using the Ripple blockchain to replace the aging (and inappropriately titled) Swift transaction system.
The KOIN gamble? That Visa and Mastercard Inc (NYSE:MA) will get off their high horse and join the party!
Granted, it is a risky play considering how stodgy Visa is. But if you’re observing macro trends, you have to love the KOIN ETF!
As of this writing, Josh Enomoto is long bitcoin and SNE.