>>> Two ETF sponsors file for funds related to blockchain, bitcoin’s foundational technology
By Ryan Vlastelica
Nov 3, 2017 https://www.marketwatch.com/story/a-potential-etf-looks-to-provide-exposure-to-blockchain-bitcoins-foundational-technology-2017-11-02?siteid=bigcharts&dist=bigcharts
Fund plans to hold companies involved in the blockchain ecosystem
The race is on.
Two different companies filed for what would be the first exchange-traded fund to track the blockchain ecosystem on Thursday, in a bid to offer investors exposure to one of the most hotly watched new technologies in years.
Amplify ETFs on Thursday filed for the Amplify Blockchain Leaders ETF
, an actively managed fund that seeks to offer exposure to companies and other securities involved in blockchain, the technology that bitcoin and other cryptocurrencies run on. Separately, Reality Shares filed for the Reality Shares Nasdaq Blockchain Economy ETF
, which would be a passively managed vehicle.
Blockchain essentially functions as a decentralized ledger used to record and verify transactions, and it is what allows digital currencies to function as a way to exchange value without the participation of a central bank or government.
During the Gold Rush, it was a common belief that entrepreneurs could make more money selling equipment to the miners hoping to strike it rich, rather than taking their chances on finding the precious metal itself. Amplify used this as a metaphor for its strategy with what has been described as the gold of the 21st century: bitcoin.
“We believe there’s a ‘pick and axe’ play here, where we’re not just looking to sell the gold, but also the equivalent of the mining equipment,” said Christian Magoon, chief executive officer of Amplify ETFs. “Bitcoin is just one application for blockchain, the best known one, but there will be all kinds of applications, not just cryptocurrencies. We think it is like the internet was 20 years ago.”
The Reality Shares fund “is designed to measure the returns of companies that are committing material resources to developing, researching, supporting, innovating or using blockchain technology for their proprietary use or for use by others,” according to a filing with the Securities and Exchange Commission.
Bullishness over the potential for blockchain is nothing new, although the fund, if approved, would be the first ETF to specifically focus on it. In October, UBS said that investing in blockchain was “akin to investing in the internet in the mid-nineties,” and estimated that it could add as much as $300 to $400 billion of annual economic value globally by 2027.
Blockchain “is likely to have a significant impact in industries ranging from finance to manufacturing, health care, and utilities,” it added. “Just as internet has transformed our lives with email, e-commerce, or smartphone apps, we believe blockchain as an infrastructure technology can power future disruptive technologies through distributive ledgers, smart contracts, tokens or identity management.”
More detail: Here’s why UBS is bullish on blockchain, but not bitcoin
Investors seem desperate for any kind of blockchain exposure, to the point where companies that put the word “blockchain”—or other cryptocurrency terms—into their name have seen share prices soar, a trend that some experts compared with an essentially automatic boost enjoyed by the technology companies that added “dot-com” to their name during the tech bubble.
It was unclear when either fund might begin trading, if approved. The Reality Shares filing didn’t give either a ticker symbol nor the expense ratio that would be charged, while Magoon said final decisions had yet to be made on those issues for the Amplify fund.
The index the Reality Shares fund will track will select its holdings through what it calls a “Blockchain Score,” a “proprietary ranking system developed by the Index Providers designed to identify those Blockchain Companies expected to benefit most (e.g., from increased economic profit, operational efficiencies or transformational business practices) from the innovation, adoption, deployment and commercialization of blockchain technology,” the filing read. The 50 to 100 companies with the highest such scores will be included and weighted based on their scores.
The Amplify fund will be actively managed, meaning the holdings will be individually selected by a portfolio manager, as opposed to its tracking the performance of an underlying index.
Magoon said he expects Nvidia Corp. NVDA, -1.51% will likely be one of the holdings, although he couldn’t officially confirm any portfolios positions.
Nvidia “meets the criteria as a lot of their products are used for mining or blockchain research, and those are the types of plays the fund would hold,” he said. “The top holdings will likely include some semiconductor companies, some financial service companies, and tech companies—those are all areas that have investments in blockchain or revenue coming from it.”
One thing it won’t hold directly is bitcoin itself, which extended its astonishing year-to-date advance on Thursday by leaping above $7,300, hitting record territory, though it subsequently pulled back. A single bitcoin BTCUSD, +6.65% is currently trading for about $7,000; the world’s largest digital currency is up more than 600% thus far this year. It currently has a market capitalization of $117.7 billion, according to data website CoinMarketCap, making it larger than such companies as Honeywell International Inc. HON, -1.00% Texas Instruments Inc. TXN, -0.11% and Goldman Sachs Group Inc. GS, +0.53% The market cap of the entire crypto space is $191.6 billion.
Earlier this year, the Securities and Exchange Commission nixed a proposed rule change that would have cleared the way for the first exchange-traded fund to track bitcoin. Other attempts to bring such a fund to market were subsequently withdrawn; the recent news that the CME Group plans to kick off a futures contract based on bitcoin
was seen as easing the path to one being approved at some point in the future.
There are still ETFs that offer indirect exposure to bitcoin, through use of the Bitcoin Investment Trust GBTC
, +9.47% which operates as a private, open-ended trust that invests solely in bitcoin, with the value of its shares entirely derived from price moves in bitcoin. Magoon suggested that the Trust might be among the holdings of the Blockchain ETF.