Irrational exuberance is a term coined by Alan Greenspan to describe “the psychological basis of a speculative bubble” where “news of price increases spur investor enthusiasm, which spreads through psychological contagion”. He coined the term in the tub and first used it in public about three years before the chip bomb crash. With that in mind, take a close look at an ad that a financial newsletter had the audacity to send to over a million readers, many of whom are likely new to investing.
Do you expect high returns? Less risk? Highly strategic and secure investments? It’s the most irresponsible ad we’ve ever seen with so much ignorance it could double as satire of The Onion. This should scare anyone who thinks preserving capital is as important as capital appreciation, but there aren’t many of these types out there right now. When everyone and their brother ask you how to make money in crypto, it’s time to sound the alarm bells.
Still, there is a lot of promise to be made in blockchain technology in niche areas like ofcentralized Fifunding (Challenge) once we have solved issues like the ‘crypto trilemma’. Blockchain network builders need to have three qualities – decentralization, security, and scalability – but at the moment, they can only have two. All of these multi-million dollar heists help prove the point. Until this trilemma is resolved, blockchain technology will not realize its full potential.
Assuming that the problem is finally fixed and that we have well exceeded the peak of Gartner’s inflated expectations, investing in blockchain technology will make perfect sense. Today we are going to talk about a ‘safe’ way to gain blockchain exposure by investing in the largest blockchain. exchange tnote Fund (AND F) nowadays.
The Largest Blockchain ETF
In May 2018, we wrote an article on 4 Blockchain ETFs for Investing in Blockchain. Below you can see the top ten holdings for each ETF at the time.
The only stock that the four ETFs could agree on should be one of the top 10 stocks was Intel. The next most common name was Microsoft, which appeared in three of the four ETFs. Then there were six other stocks that appeared in more than one ETF which can be seen highlighted in yellow.
A quick review of these blockchain ETFs today shows that we have amassed a significant amount of assets.
Amplify transformational data sharing ETF – BLOK
Amplify Transformational Data Sharing (BLOK) ETF topped $ 1 billion in asets youunder mmanagement (assets under management) which represents around a third of the size of ARK’s Fintech Innovation ETF. Institutional investors seem to be getting on board, so what are they buying? Here’s what BLOK says on the box:
BLOK is an actively managed ETF that seeks to provide a total return by investing at least 80% of its net assets in equity securities of companies actively involved in the development and use of blockchain technologies.
This description casts a wide net. According to Blockdata, 81 of the top 100 public companies use blockchain technology. As with any ETF we analyze, the first thing to do is understand exactly what we are exposing ourselves to by looking at the top 12 assets that make up 50% of this ETF.
|CAPITAL SILVERGATE (SI)||5.83%|
|NVIDIA CORPORATION (NVDA)||5.24%|
|GALAXY DIGITAL HOLDINGS (GLXY.TO)||4.91%|
|CABANE 8 MINERAL (CABIN)||4.19%|
|RUCHE BLOCKCHAIN TECHNOLOGIES (HONEY)||3.84%|
|RIOT BLOCKCHAIN (RIOT)||3.74%|
|DIGITAL MARATHON (MARA)||3.54%|
|CME GROUP (CME)||3.39%|
|SBI HOLDINGS (8473.T)||3.27%|
There are a few outliers here. It’s hard to argue that NVIDIA is a game on the blockchain. The same goes for CME Group, an $ 82 billion company that operates the world’s largest financial derivatives exchange, and SBI Holdings, a Japanese company that dabbles in all kinds of different things. As for Microstrategy, we talked about this mess of a company whose CEO is obsessed with bitcoin instead of the software company he was put in charge of running. Still, Microstrategy remains a popular bitcoin stock that tops our list of 7 bitcoin stocks that we covered in our May 2021 post. A Complete Guide to Investing in Blockchain Stocks. In that same post, we talked about two bitcoin mining stocks – Marathon Digital and Riot Blockchain – neither of which we found convincing. Hut 8 Mining, another bitcoin mining company we covered, was way too risky for our liking.
Of BLOK’s top 12 stocks, half are bitcoin mining stocks. If you’re in the crypto cult, you might want to cover your ears for what we’re about to say. If the price of bitcoin crashes for some reason, bitcoin mining stocks are going to be almost screwed up. Is this really a risk you want to take? As we said in our recent Argo Blockchain Bitcoin Miner article, the benefit you might receive from leverage is not worth the business specific risk you take when investing in miners. bitcoin. If you want to get exposure to bitcoin, just buy bitcoin.
That leaves us with two remaining stocks – Coinbase and Silvergate Capital – which we have both hedged before. We would buy Coinbase at $ 128 a share and Silvergate Capital is a crypto bank with too much complexity and too many unknowns.
We’re not overly impressed with the voters list so far, and it’s only plummeting from here on out. Let’s take a look at the next 20 names on the list that represent an additional 38% of the ETF’s AUM.
|DIGITAL TRAVEL (VOYG.TO)||2.81%|
|INTERNET OGM (9449.T)||2.78%|
|DIGITAL GARAGE (4819.T)||2.56%|
|BLOCKCHAIN ARGO (ARBK)||2.45%|
|HOLDINGS Z (4689.T)||2.21%|
|10% CONVERTIBLE SCIENTIFIC BASE NOTE 04/19/2025||1.65%|
|MICRO ADVANCED DEVICES (AMD)||1.56%|
|ETF BITCOIN (EBIT.TO)||1.32%|
|BITCOIN ETF ETF (BTCC.TO)||1.30%|
|3IQ COINSHARES ETF BITCOIN (ETHQ.TO)||1.30%|
Twitter is a blockchain game? It seems difficult to argue. The same goes for Accenture, Oracle and IBM. Advanced Micro Devices may make the chips that power bitcoin mining rigs, but that’s only a fraction of this $ 186 billion chipmaker’s revenue. Paypal and Square are consumer payment games. Z Holdings is a Tokyo-based holding company, while Digital Garage is a Japanese company that cannot explain what it is doing to save their lives. Also from Japan, GMO Internet provides various Internet services all over the world. Overstock is an American Internet retailer selling primarily furniture, and Mogo is a small Canadian fintech company. Then there’s Robinhood, a company that democratizes wealth by selling risky assets like crypto and options to retail investors.
More bitcoin miners including one we covered recently, Argo Blockchain. Canaan is a Chinese bitcoin mining company that has left China since bitcoin mining is now banned there. Voyager Digital is a Canadian crypto asset brokerage firm that facilitates the trading of crypto assets (we loosely use the term active). Core Scientific is a blockchain infrastructure and hosting company looking to go public through a sspecial pgoal apurchase vscompany (After-sales service) called Power & Digital Infrastructure Acquisition Corp (XPDI) which we may consider covering in the future.
Finally, the ETF owns three other ETFs. Why should investors pay one expense ratio for BLOK and then additional expense ratios for the ETFs it holds?
For early stage disruptive technologies like blockchain, it is often difficult to find many pure-play stocks. Therefore, ETF providers often have to broaden the definition of the thesis they are trying to target. It seems to be happening here. Overall, we don’t find this portfolio of assets to be a very compelling way for investors to gain exposure to blockchain.
Investing in an exchange-traded fund only makes sense if the stocks in the portfolio give you exposure to the thesis in question. Investors looking for blockchain exposure may be better off building their own basket of stocks and forgoing the 0.71% expense ratio charged by Amplify. Blockchain-based assets and crypto assets are subject to exceptional volatility, so risk-averse investors seek to avoid this space altogether until it matures a bit more.
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