As Bitcoin Falls, Investors Flock Instead to Blockchain ETFs

Bitcoin, the most popular of the digital currencies by market capitalization, has plummeted in value.

Now, investor cash is starting to flow into the exchange-traded funds (ETF) business related to blockchain, the technology that drives cryptocurrencies.

Investors poured $240 million into two new blockchain ETFs launched on Jan. 17.

Amplify Transformation Data Sharing ETF (BLOK) increased managed assets to $164.9 million from $2 million in a one-week period, according to data from FactSet and CNBC.

Another ETF, Reality Shares NASDAQ NexGen Economy ETF (BLCN), saw its invested funds increase ninefold in one week to $86.27 million.

“It is rare for new ETFs to pull in such a large amount of cash,” Todd Rosenbluth, CFRA’s director of ETF and mutual fund research told ThinkAdvisor.

“But there has been pent-up demand for a thematic approach to gain exposure to blockchain.”

Jamie Hopkins, a professor at The American College of Financial Services, said blockchain and cryptocurrency holdings “are drawing serious money right now.”

“They are hot. People are interested. If anything, some clients just don’t want to miss out. They want to talk about how they tried and were part of it all,” he said.

Blockchain ETFs hope to participate in the growth of cryptocurrency markets by investing in established companies that have either announced an interest in investing in blockchain-related businesses or are exploring ways to incorporate blockchain technology as part of their normal business operations.

“The reality is that companies, businesses, and start-ups are just now starting to figure out how to use blockchain technology in a beneficial way,” Hopkins explained.

Indirect exposure

The strategy is not to own crypto coins but to buy indirectly into the idea via technology investments.

Some of BLOK’s largest holdings include Taiwan Semiconductor Manufacturing, as well as established Internet retailer

Taiwan Semiconductor as well as other chipmakers have reported increased revenue due to a surge in demand for equipment from cryptocurrency miners. Overstock accepts Bitcoin and other virtual currencies at its site.

BLCN holds stocks such as tech stalwart IBM, which is developing enterprise blockchain projects, and also owns shares in financial services companies that are examining how blockchain technology can enhance and make their existing transaction related processes more efficient.

“Almost every large financial service company I work with is looking at how blockchain can benefit them,” Hopkins said.

“They all have task forces and, in some cases, entire internal departments trying to figure it out.”

Eric Ervin, CEO of Reality Shares, said that its current ETF represents the first in a series of products that the fund will be offering investors.

Ervin estimates that BLCN’s assets will exceed $100 million within the next few days.