How to invest in companies profiting from blockchain technology and/or digital assets

There has been a lot of activity in the asset management sector regarding digital assets. Crypto hedge fund, BlockTower Capital, has acquired rival hedge fund, Gamma Point  Capital, in an announced $35 million deal which enables investors to profit irrespective of  whether the price of Bitcoin is rising or falling. Furthermore, BlackTower Capital had  launched a DeFi fund earlier this year. However, of real interest in the asset management  world has to be the announcement that Invesco (with $1.5 trillion of assets under management) has filed with the SEC to launch two cryptocurrency-focused exchange-traded  funds (ETFs). Invesco is proposing that 85% of the Invesco Galaxy Blockchain Economy ETF  and the Invesco Galaxy Crypto Economy ETF will be invested in crypto-linked equities, not  cryptocurrencies directly. 

Galaxy described the fund as: “The Fund will not invest directly in cryptocurrencies or crypto  assets directly and will not invest in initial coin offerings. The Fund may, however, have  indirect exposure to crypto assets by virtue of its investments in companies that use one or  more crypto assets as part of their business activities or that hold crypto assets as  proprietary investments” This investment strategy of offering exposure to crypto assets  without investing directly into cryptos has been proposed by others; similarly Bitwise is  looking to launch the Bitwise Crypto Industry Innovators ETF (ticker BITQ) which has $45  million in assets less than a month after its launch. This fund holds companies exposed to  cryptos such as MicroStrategy Inc., Coinbase Global Inc., and Galaxy Digital Holdings Ltd. Another firm using this strategy is the First Trust Indxx Innovative Transaction & Process  ETF, which was launched in 2018 and currently has over $100million of assets. 

If you are looking to invest in digital assets via a hedge fund there is certainly plenty of  choice, with over 420 to select from. Interestingly, a recent survey carried out for Intertrust (a fund administration firm) found that potentially an additional $312 billion of cash from  hedge fund managers could be allocated into cryptocurrencies. Claims from the 100 hedge  fund managers surveyed included that they were looking to increase their holdings in  cryptos to 7% of their portfolios. There is a risk, certainly in the UK, that, as hedge fund  managers increase their exposure the FCA, and the press is doing all it can to prevent the  general public investing in this asset class. 

When asked about inflation and the Federal reserve Paul Jones, one of the world’s most  successful hedge fund managers on the TV station, CNBC, said: ““If they say, ‘We’re on [the]  path, things are good,’ then I would just go all in on the inflation trades,” adding, “I’d  probably buy commodities, buy crypto, buy gold.” Meanwhile, Alan Howard, one of the most  successful (and billionaire) fund managers in recent years has just invested in the successful  and innovative crypto custody provider, Copper. Howard has been active in the digital  assets sector since stepping down from the day-to-day management of one of Europe’s best  known hedge fund managers, Brevan Howard, where he was co-founder and made his  fortune. Latterly, Howard has established Elwood asset management, designed to make it  easier for institutional mangers to get access to digital assets. One of Elwood’s products is  an application programming interface (API) which enables an investor/fund manager to  access thousands of cryptocurrencies being traded over 30+ crypto exchanges. Elwood also  offers the Elwood Global Blockchain Index Fund which is designed to offer exposure to global companies in developed and emerging markets which participate, or have the  potential to participate, in the blockchain ecosystem. Invesco has created an ETF to track  this index and its Invesco Fund now has over $1 billion of assets. 

However, Elwood is not the only firm to offer access to those companies exposed to  blockchain technology and/or digital assets – quoted equities such as Mircostrategy, IBM,  Microsoft, Tencent, Overstock, Argo blockchain being some, to name just a few. Here are  five other ETFs which offer exposure to the blockchain and the fast-evolving digital assets  sectors: 

Siren Nasdaq NexGen Economy ETF (BLCN) is $300m in size and was established in January 2018, tracking the Nasdaq Blockchain Economy Index. The index invests in  over 70 companies which are engaged in developing, researching, supporting,  innovating or using blockchain technology for their proprietary use, or for use by  others.  

Amplify Transformational Data Sharing ETF (BLOK), is $1+billion in size and is an  actively-managed ETF investing in approximately 50 firms which are engaged  with/exposed to using blockchain technology.  

VanEck Vectors Digital Transformation ETF (DAPP) launched in April 2021 with  $24million under management, tracking the MVIS Global Digital Assets Equity Index.  The ETF is very focused, investing in less than 30 stocks which are engaged in the  ‘digital assets’ economies.  

Capital Link Global Fintech Leaders ETF (KOIN) is $27 million in 

size. Previously called Capital Link NextGen Protocol ETF (change effective April 6,  2021), the fund now tracks the ATFI Global Fintech Leaders Index. The ETF invests  into companies which are digital asset providers or solution providers.  

Bitwise Crypto Industry Innovators ETF (BITQ) was established in May 2021 and has  £39million of assets under management. It tracks the Bitwise Crypto Innovators 30  Index. At least 85% of the index is focused on pure-play crypto companies, including  bitcoin and crypto trading venues, crypto mining and mining equipment firms, and  service providers, while the remaining 15% is allocated towards large cap firms with  at least one significant business line focused on the crypto economy. 

Hence, one can see there are a variety of ways that it is possible to obtain exposure to  companies engaged with blockchain technology and/or digital assets, and it does not have  to simply be buying Bitcoin or a bag of other cryptos. The variety of passive and actively managed funds makes it very easy for institutions (and wealth managers on behalf of  private clients) to gain access to the investment opportunities that blockchain technology  and digital assets offer.

Weekly Blockchain and Digital Assets Analysis by TeamBlockchain Ltd. 

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