Blockchain ETFs launch after bitcoin rout

The fund industry has a propensity to roll out products just as a market trend peaks

Jan 19, 2018 @ 2:38 pm

By John Waggoner

The mutual fund industry has a long history of rolling out new specialty funds at precisely the wrong time, and the latest round of blockchain funds isn't detracting from that reputation.

Bitcoin, the most popular digital currency, saw its value peak above $19,000 in December. As of this writing, it's trading at $11,227 after dipping below $10,000 earlier this week. Among the possible worries for bitcoin investors: A plethora of rival cryptocurrencies, as well as threatened crackdowns on trading by South Korea and China.

On Wednesday, Reality Shares launched Reality Shares Nasdaq NexGen Economy ETF (BLCN). At the same time, Amplify Trust ETF launched Amplify Transformational Data Sharing ETF (BLOK). Both funds aim to invest in stocks of companies that take advantage of blockchain, the decentralized technology used to record transactions for bitcoin and other cryptocurrencies.

You won't find a bitcoin in either ETF. The top three holdings in Reality Shares Nasdaq NexGen Economy ETF are Intel Corp. (INTC), Inc. (OSTK) and International Business Machines (IBM). About 57% of the ETF is invested in technology stocks, and 32% is in financials. The Amplify offering's largest holdings are Taiwan Semiconductor Mfg. Co. Ltd. (TSM), Inc. and Digital Garage Inc. (TYO).

The Securities and Exchange Commission required both companies to remove the word "blockchain" from their ETFs' names, in part because anything with the word "blockchain" has skyrocketed. In December, Long Island Iced Tea Corporation changed its name to Long Blockchain Corporation. Its shares soared as much as 289%.

Three companies — ProShares, Rafferty Asset Management and Exchange Traded Concepts — have withdrawn applications to offer bitcoin ETFs after the SEC expressed concerns about liquidity and valuation of bitcoin futures contracts. Direxion Asset Management, never one to shy away from volatile offerings, has proposed ETFs that use leverage to multiply bitcoin performance up to 2x its daily return. The funds would be called Direxion Daily Bitcoin Bear 1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares and Direxion Daily Bitcoin 2X Bear Shares.

"The fact that the SEC was reluctant to approve bitcoin ETFs and ETFs that had 'blockchain' in their names should give advisers and investors concern about the risks related to such investments," said Todd Rosenbluth, senior director of ETF and Mutual Fund Research at CFRA.

Advisers considering bitcoin or blockchain ETFs should also note the fund industry's propensity for rolling out products just as a market trend peaks. It takes a while for companies to spot new trends and to get ETFs or funds through the SEC approval process. By that time, the roller-coaster has started its downhill slide. For example, the fund industry launched 37 technology funds in 1999 during the dot-com bubble. Just five of the tech class of 1999 survive today, according to Morningstar.

More recently, fund sponsors launched numerous international funds that used hedging to minimize the effect of currency fluctuations, Mr. Rosenbluth said.

"Almost every asset manager that had an unhedged offering had a currency-hedged version," he said.

Unfortunately for those funds, the dollar's long bull market ended — and so did the popularity of hedged funds. Many of them have since closed.


What do you think?

View comments

Recommended for you

All of the noise in the District of Columbia is distracting your clients. Ben Phillips of Event Shares explains what deserves your attention (and what doesn't) as we head into 2018.

Recommended Video


Latest news & opinion

Capital Group, sponsor of American Funds, wins 401(k) lawsuit

Decision comes as financial services companies, especially those focused on active management, have been sued for self-dealing.

SEC considers barring aggrieved investors from suing companies

Swept up by pro-business zeitgeist, regulator seeks to reverse two-decade slump in U.S. stock listings.

Wells Fargo, Morgan Stanley use contrary tactics to keep advisers

Wells is helping brokers transition to independence within the firm, while Morgan is taking them to court.

Fidelity pushes Vanguard to compete on brand in 401(k) plans

With Fidelity imposing an additional fee, Vanguard likely will look less attractive compared with comparably priced index-fund providers, advisers said.

Goldman's measure of risk appetite hits record

Global stocks and U.S. Treasuries are seeing their most "extreme" start to a year ever, bank says.


Hi! Glad you're here and we hope you like all the great work we do here at arjuna-design. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Last News

t rowe price 2030 fund review roth recharacterization deadline cheapest index funds mfs high income fund vanguard roth ira calculator how long can you contribute to a roth ira fidelity large cap value turbotax federal and state 2014 surrendering life insurance government hsa review green eggs and ham text online anna nicole smith daughter net worth what is the value of a 1943 penny best performing mid cap mutual funds home mortgage consultant wells fargo salary is a pension the same as a 401k how much does fdic insure per account how to calculate social security disability benefits vanguard total international stock index admiral how much does a financial professional associate make at prudential how much can i put into my 401k what is a mutual fund load h&r block cost of tax preparation pimco total return fund institutional class american century international growth fund ira gift to charity roth 401k versus 401k loans from ira rollover accounts ira loan 60 days vanguard institutional index fund plus can i convert my ira to a roth morgan stanley client advisory center john hancock strategic income opportunities