Blockchain ETFs Stall Despite Returns

September 05, 2019

Blockchain ETFs are having a great year in performance, delivering solid gains relative to the broader market. The trouble is, no one seems to care, despite blockchain being touted as “the next big thing.”

The biggest blockchain ETF, the Amplify Transformational Data Sharing ETF (BLOK), is up 24% year to date. The S&P 500, as measured by the SPDR S&P 500 ETF Trust (SPY), is up 18.5%. Yet investors have yanked $15 million in net assets from BLOK year to date. The fund has seen only one day of positive flows so far in 2019.

Other blockchain ETFs are also seeing negative net asset flows this year. The Reality Shares Nasdaq NexGen Economy ETF (BLCN) and the Innovation Shares NextGen Protocol ETF (KOIN) are also handily beating SPY this year (as the chart below shows), but both funds are faced with net redemptions year to date.

 

Chart courtesy of StockCharts.com

 

Good performance has done little to attract investor dollars to this corner of the market.

This apparent lack of appetite for blockchain funds, most of which debuted about a year ago, could be tied to two main factors:

No 1: Aversion To Risk

Investor appetite for riskier pockets of the market has been muted—at best—this year.

Blockchain as a segment of the equity market is perhaps the epitome of growth, as blockchain-linked companies tread the cutting edge of new technology. Many have yet to understand what blockchain is and how it works.

That’s a segment that doesn’t quite fit the overarching—prevailing—narrative this year: that investors ought to play it safe in the face of global macroeconomic and geopolitical head winds. Growth stocks are risky; technology growth stocks are particularly so.

A look at ETF asset flows this year shows an increasing aversion to risk. U.S. and international equity ETFs faced $22 billion in net outflows last month alone. Year to date, equity ETFs have attracted less than half the fresh net assets U.S. and international fixed income funds have—this has been a year for safety plays.

No. 2: Lacking ‘Proof Of Concept’

Also weighing on blockchain ETFs could be a perceived lack of “proof of concept” when it comes to blockchain’s early-on promise of revolutionizing all sorts of industries.

To many, blockchain remains the difficult-to-understand technology behind cryptocurrencies, and nothing more. That’s actually not a far-fetched perception, according to Christian Magoon, founder of Amplify.

He noted that the performance of BLOK this year has been highly correlated to price action in bitcoin, adding to that perception. Bitcoin more than doubled in value this year, and is currently sitting around $10,500 per coin.

“There’s been a lot of development in blockchain going on,” said Magoon, “but investors are looking for more projects and application beyond cryptocurrencies.”

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