Wall Street is raining on the red-hot blockchain ETF parade

Wall Street is raining on the red-hot blockchain ETF parade

Patrick Byrne, Overstock

AP Photo/George Frey

CEO of Overstock.com Patrick M. Byrne

  • Two recently launched blockchain exchange-traded funds are off to a scorching start.
  • But not every market-watcher is convinced that the funds are a solid investment.

Two blockchain exchange-traded funds that began trading this month are off to a scorching-hot start, but some market watchers are raining on the parade.

Earlier this month, Reality Shares and Amplify ETFs launched funds that aim to provide investors exposure to blockchain technology, which is best known for powering cryptocurrencies such as bitcoin. The size of Amplify's blockchain ETF, which trades under the ticker BLOK, has ballooned to $180 million in the ten days since it began trading on the New York Stock Exchange. Reality Shares' Nasdaq NexGen ETF, which trades under the ticker BLCN on Nasdaq, has soared past $100 million, the company announced Wednesday.

Still, UBS said that blockchain, a distributed ledger technology, is too nascent an industry to properly capture in a fund.

"What we believe is important to consider when investing in a fund targeting an emerging industry is that, often times, pure-plays do not exist," the bank said.


Since pure-play blockchain companies that are fully built around and focused on the new technology don't really exist (yet), funds attempting to offer exposure to the space will invest in companies that are to some degree integrating blockchain into their infrastructure, even if their core businesses lie elsewhere.

For example, Overstock, one of the companies included in the Reality Shares ETF, has a venture arm that invests in blockchain startups, but its main business is in ecommerce. The problem, according to UBS, is that blockchain won't have a meaningful impact on those businesses in the near-term.

"If as an investor you are targeting early [distributed ledger technology] investment, either with an individual company or with an index, ensure that you are comfortable with the company or index members' fundamentals as a whole, as we believe this will be what drives returns over the short-to-medium-term," the bank said.

Kian Salehizadeh, a senior analyst at Reality Shares, told Business Insider that UBS' point about there being no pure-plays in the space is valid.

"You are not going to have any fund that would be made up completely of pure-plays," Salehizadeh said.


"The fund is structured so that you are getting a mix of US and global players involved in the eco-system at various stages," he added. "It is a long term play."

One investor, however, said he is skeptical about whether these funds offer a unique alternative to other funds on the market.

"I love the hundreds of millions piling into blockchain ETFs to pay 70bps to buy OSTK, IBM, CSCO, MSFT, and NVDA. Now that's a good business," David Schawel, chief investment officer at Family Management, said in a tweet soon after the funds launched. "When you go to sleep, you can feel good knowing the ETF symbol you paid 70bps for kind of sounds like Blockchain."

As noted by Bloomberg reporter Sarah Ponczek, the returns of the two ETFs correlate 90% with State Street's Technology SPDR Fund.

Still, Salehizadeh said that since the fund's make up will evolve over time, the companies that make up a standard tech fund won't necessarily match-up with the companies in his firm's ETF.


"Every six-months we re-evaluate," he said. "The mix of companies will change."

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