Investors in the U.S. that like both cryptocurrency and exchange traded funds – and demographic data confirm there are plenty in this category – face a problem. There’s still no ETF that provides direct access to bitcoin (BTC) or any other digital asset, for that matter.
The Securities and Exchange Commission (SEC) continues kicking the can down on approving a bitcoin ETF, prompting some issuers to consider approaching the commission with futures-based products. This isn’t surprising. After all, the SEC forbids “blockchain” from appearing in an ETF’s name and some market observers opined Chairman Gary Gensler would be a challenge for bitcoin ETF backers.
All that while Canada has multiple bitcoin AND ethereum ETFs. Here in the U.S., it’s becoming a fools errand predicting when regulators will approve a bitcoin ETF. Fortunately, there are other avenues for crypto ETF exposure, indirect as it may be. In lieu of an ETF backed directly by a digital asset, a new generation of equity-based crypto ETFs are popping and catching investors’ attention (and assets) along the way. Here are a few to consider.
VanEck Vectors Digital Transformation ETF (DAPP)
The VanEck Vectors Digital Transformation ETF (DAPP) debuted in April and follows the MVIS Global Digital Assets Equity Index, which “is intended to track the performance of companies that are participating in the digital assets economies,” according to VanEck.
One way of looking at DAPP is that the new crypto ETF is a void filler. While it obviously doesn’t directly own digital assets, it holds of companies that do, such as MicroStrategy (MSTR) and Square (SQ). DAPP, though it has a concentrated portfolio of just 25 holdings, also offer deep reach into crypto ecosystem.
“There are a wide range of business lines that digital transformation companies can participate in — from exchanges, to mining, to asset management. Generally speaking, bitcoin and other digital assets may play a crucial role in a company’s business operations, but companies should not be conflated with digital assets,” writes John Patrick Lee, VanEck product manager.
Overall, DAPP is one of the purer ideas out there in the current crypto ETF landscape.
Bitwise Crypto Industry Innovators ETF (BITQ)
The Bitwise Crypto Industry Innovators ETF (BITQ), which debuted in May, is a force in the universe of equity-based crypto ETFs. The rookie fund follows the Bitwise Crypto Innovators 30 Index and is home to many of the same stocks as are found in the aforementioned DAPP.
BITQ is relevant on the crypto ETF stage because it has what investors are looking since there isn’t a dedicated crypto ETF on the market today: Correlations to digital assets.
“For investors, these companies are often seen as a way to gain indirect exposure to cryptoassets like bitcoin. While track records are short, the data we have so far supports this narrative: Correlations between crypto equities listed for over six months and cryptoassets have typically been in the 0.50 to 0.75 range,” according to Bitwise.
In plain English, some BITQ holdings are far more correlated to crypto prices than are stocks in traditional technology benchmarks.
“Crypto miners, for instance, tend to have significant operating leverage to crypto prices and therefore their share prices tend to exacerbate the crypto price cycles,” according to Bitwise. “Other industry players, however, have valuation drivers that might be not entirely influenced by crypto prices. Exchanges are a prime example, as they derive their revenues from trading volume, which might not always move in tandem with crypto prices (and can even spike during short pullbacks), or from additional services that they can add on top of trading fees.”
Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (RIGZ)
The Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (RIGZ) is the newest of the crypto ETFs mentioned here, having launched in July. RIGZ could prove to be a well-timed new crypto ETF because it addresses a rising concern in the digital asset investing space: Environmental implications.
While it’s estimated that 70% of the energy used by the bitcoin industry is renewable, that’s just one digital coin and substantial concerns remain about power consumption and fossil fuel demands in the mining of other cryptos. Those concerns arrive as the social and investment implications of climate change are on display on a daily basis, underscoring the potential perch for RIGZ as a play on sustainability.
“Bitcoin and cryptocurrencies continue to grow in importance, and we are witnessing a new wave of institutional support for this emerging asset class. We launched RIGZ to provide investors with an ETF that attempts to align purpose and profit by investing in the infrastructure that underpins the entire ecosystem with sustainability in mind,” said Viridi CEO Wes Fulford.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.