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Best Blockchain ETFs: Here’s How You Can Invest in the Backbone of Cryptocurrencies
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Many investors may recognize blockchain as the underlying technology popular cryptocurrencies such as Bitcoin and Ethereum. But its application also extends to sectors and services.
Blockchain is essentially a string of information or “blocks” recorded on independent computers connected via a shared network. Each block of data is frozen in time on an open ledger that can be accessed by all participants. This feature makes blockchain technology particularly useful in sectors where security is fundamental, such as banking.
As a retail investor, there are several ways to participate in this emerging technology. But first, let’s look at the basics of blockchain and why it is becoming crucial.
What is blockchain technology?
Understand blockchainyou need to first review the purpose of the technology.
Fundamentally, blockchain reduces the risk of fraud, corruption, or data obfuscation by a central authority. By democratizing access to information on an open record for all to see, technology makes it nearly impossible for a single individual to manipulate the facts.
By connecting verified data and making it accessible to all, blockchain simplifies and automates even processes that previously might have been inefficient, such as manually recording information.
For example, Walmart (WMT) uses blockchain to ensure food safety by tracking products all the way back to the farm. Therefore, in the event of an E. coli or salmonella outbreak, the retailer can quickly locate the source, preventing the spread of contaminated food.
Large companies like Microsoft (MSFT), PayPal (PYPL), Starbucks (SBUX), Salesforce (CRM), and IBM (IBM) use blockchain for digital security, infrastructure, and automation, among other uses.
How to invest in blockchain
Outside of cryptocurrency trading and individual stocks, investors can gain exposure to blockchain technology exchange-traded funds (ETF). A blockchain ETF holds a basket of publicly traded companies exposed to the technology. These companies can use blockchain directly or profit from their services to support the industry.
It is important to note that blockchain ETFs do not directly hold cryptocurrency assets. These funds are instead designed to invest in global companies, many of which are top names in the technology sector.
The best blockchain ETFs
This niche area of the ETF market remains fairly uncrowded, with only a handful of players present in the sector. And since there are no pure play blockchain companies, most of the holdings in these funds tend to overlap with other broad-based ETFs.
Below we highlight the names with the greatest assets under management. (Data is as of May 7, 2024.)
Amplify Transformational Data Sharing ETF (BLOK)
BLOK is the most important blockchain ETF on the market. This actively managed fund selects global companies to develop and apply blockchain technologies.
- The best participations: MicroStrategy Inc (MSTR), Coinbase Global (COIN), SBI Holdings and Galaxy Digital Holdings (GLXY.TO)
- Expense ratio: 0.76%.
- Managed savings: $658 million
Siren Nasdaq NexGen Economy ETF (BLCN)
BLCN owns global companies that support the development and research of blockchain technology.
- The best participations: MicroStrategy (MSTR), Coinbase Global (COIN), and NVIDIA (NVDA)
- Expense ratio: 0.68%.
- Managed savings: 73 million dollars
First Trust Indxx Innovative Transaction & Process ETF (LEGR)
LEGR offers exposure to a global portfolio of companies with varying degrees of involvement in blockchain.
- The best participations: JD.com (JD), Micron Technology (MU), and PayPal (PYPL)
- Expense ratio: 0.65%.
- Managed savings: 106 million dollars
Bitwise Encryption (BITQ) Industry Innovators
BITQ holds an index of 30 crypto companies from around the world. Some of these names derive over 75% of their revenues from crypto assets.
- The best participations: Coinbase Global (COIN), MicroStrategy Inc (MSTR), Marathon Digital Holdings (MARA), and CleanSpark (CLASK)
- Expense ratio: 0.85%.
- Managed savings: $122 million
Global X Blockchain ETF (BKCH)
BKCH invests in global companies that participate in blockchain activities such as digital asset mining and integration.
- The best participations: CleanSpark (CLSK), Coinbase Global (COIN), Marathon Digital (MARA), Riot Blockchain (RIOT), and Hut 8 Mining (HUT.TO)
- Expense ratio: 0.50%.
- Managed savings: $136 million
Cryptocurrency and Blockchain ETFs: How These Investments Differ
For those interested in digital currencies, Bitcoin ETFs they offer the easiest way to invest through a traditional exchange, so you don’t have many options yet. And you also have other ways to own cryptocurrencies directly or through futures contracts.
If you want to trade digital currencies like Bitcoin, you can access specialized services cryptocurrency exchanges like Coinbase or Binance.
Alternatively, some of the best traditional brokers for buying and selling cryptocurrencies include Charles Schwab and Interactive Brokers, which also offer Bitcoin futures contracts.
Risks associated with emerging technologies
Similar to other thematic investments such as electric vehicles OR artificial intelligence, blockchain ETFs tend to have additional sources of volatility. These risks may be market-related, such as price valuations or sudden changes in investor sentiment. Or they can be macro risks, such as further government regulations.
Considering Bitcoin, which uses blockchain technology to store every transaction ever made. The digital currency has been around since 2009, but the popular cryptocurrency is not without skepticism from authorities and investors. This uncertainty translates into greater volatility.
For both sophisticated and retail investors, evaluating the value of Bitcoin and other cryptocurrencies as EthereumXRP and Cardano remains a challenge. Most traders seem uncertain about how much these cryptocurrencies might be worth now or in the future.
However, it seems that the trend in cryptocurrency trading is not going anywhere. If anything, it appears to have gained traction, as has the adoption of blockchain.
Editorial Disclaimer: All investors are advised to conduct their own independent research on investment strategies before making an investment decision. Furthermore, investors are advised that past performance of investment products is no guarantee of future price appreciation.