BlackRock, the largest asset manager in the world, is launching a blockchain exchange-traded fund (ETF) for investors who want to invest in cryptocurrency and blockchain companies without owning digital assets.
The Blockchain and Tech ETF is listed in BlackRock’s iShares product line and tracks 41 international companies in the crypto space.
Coinbase is the largest company listed in the ETF. The U.S.-based cryptocurrency exchange makes up 11.45 percent of the fund. Bitcoin miners Marathon Digital Holdings and Riot Blockchain Inc. are also listed in the ETF. Marathon Digital Holdings makes up 11.19 percent of the holdings and Riot Blockchain makes up 10.41 percent.
Separately, BlackRock published a report outline three areas of the investment market undergoing major changes. Decentralized finance is one of those megatrends, the report says.
The Growth of Crypto ETFs
An ETF is a collection of assets traded on an open market in the same way individual stocks are traded. ETFs are investment funds that track the performance of a particular index, a specific commodity, or an asset. Historically, regulatory agencies have been reluctant to approve cryptocurrency ETFs due to the volatility of the underlying assets.
After years of wrangling with potential crypto ETF issuers, the Securities and Exchange Commission approved the first crypto ETF in October 2021. The first application for a cryptocurrency ETF was filed in 2013 by Gemini crypto exchange founders Cameron and Tyler Winklevoss.
Since the first crypto ETF was approved, many more have launched. Kiplinger has counted as many as 18 crypto and blockchain ETFs.
At the top of Kiplinger’s list is the ProShares Bitcoin Strategy ETF. With $1.3 billion assets under management, it was the first ETF to provide investors with exposure to bitcoin futures. The fund launched on October 18, 2021.
The largest fund on Kiplinger’s list is the Grayscale Bitcoin Trust, which has $25.6 billion in assets under management. Grayscale’s fund isn’t an ETF. Rather, it’s a trust where the fund went public with a fixed number shares that are traded over the counter. Bitcoin shares follow the price of bitcoin on the CoinDesk Bitcoin Price Index but trade at a 25 percent discount to the NAV of the bitcoins held in the trust. That essentially means investors buy bitcoin at 75 cents on the dollar.
Cryptocurrencies Have Come a Long Way Since 2008
Bitcoin’s whitepaper was published on October 31, 2008. The genesis block was mined on January 3, 2009. Since then, thousands of other cryptocurrencies have popped up and the ETF market is growing with it.
BuiltIn lists 20 crypto-based ETFs.
Some of the largest asset managers in the world have launched ETFs. These include Valkyrie Funds, VanEck, Mirae Asset Financial Group, Bitwise, First Trust Company, Amplify ETFs, Volt Equity LLC, Invesco, and Teucrium. Valkyrie launched in 2020 and since then has launched three different crypto ETFs: Valkyrie Bitcoin Strategy ETF, Valkyrie Bitcoin Miners ETF, and Valkyrie Balance Sheet Opportunities ETF.
As the cryptocurrency and blockchain ecosystem grows, more opportunities to invest in these assets without owning will open for both accredited investors and unaccredited investors alike.
Many accredited investors like ETFs because they can invest in a bucket of similar assets with one fund without holding those assets themselves. In the case of cryptocurrencies, the inherent volatility in the asset class is enough to keep some investors from buying the assets. Another barrier to entry is that many of the digital assets themselves are not traded on central exchanges. Lack of regulation is another barrier to entry. ETFs allow investors to enter this growing asset class without owning the underlying assets. They can experience huge gains without the drawbacks of volatility, an unregulated market, and the pains of overcoming difficult obstacles to purchasing them.