Blockchain ETFs Stumble Out Of The Gate

January 25, 2019

Last January, four blockchain ETFs launched within days of each other. Then, interest in blockchain ETFs all but evaporated (read: "Comparing 4 Blockchain ETFs").

By the end of the month, the funds had attracted hundreds of millions in investor assets from speculators and true believers, many of whom saw blockchain as the next best thing to a cryptocurrency ETF. (After all, bitcoin and other cryptocurrencies are based on blockchain tech.)

Hype, thy name is blockchain

Though the six blockchain ETFs have taken in a combined $287 million over their lifetime, since February of last year, the funds have actually lost a combined $21 million in net investment assets:

 

Performance Of Blockchain ETFs
  Performance  
Ticker Fund Name AUM ($M) Expense Ratio Spread 1 Month 1 Year Since Inception Flows Since Inception ($M) Inception Date
BLOK Amplify Transformational Data Sharing ETF $117.96 0.70% 0.11% 11.09% -23.49% -19.81% $142.84 1/16/2018
BLCN Reality Shares Nasdaq NexGen Economy ETF $85.93 0.68% 0.54% 8.51% -15.38% -14.50% $90.60 1/17/2018
LEGR First Trust Indxx Innovative Transaction & Process ETF $46.18 0.65% 0.40% 8.19% --     -8.69% $40.22 1/24/2018
KOIN Innovation Shares NextGen Protocol ETF $10.01 0.65% 0.60% 9.39% --     -5.02% $7.52 1/30/2018
BKC REX BKCM ETF $5.32 0.88% 0.32% 8.91% --     -16.70% $3.79 5/16/2018
BCNA Reality Shares Nasdaq NexGen Economy China ETF $1.93 0.78% 1.79% 4.23% --     -21.69% $2.40 6/20/2018

 

Subpar fund performance—due, in large part, to the late 2018 tech crash—has helped keep investors at bay. The biggest blockchain ETF, the $118 million Amplify Transformational Data Sharing ETF (BLOK), has dropped a whopping 20% since its inception one year ago.

Bitcoin Stumbles Precede Blockchain Decline

But flagging chip stocks aren't the sole reason that flows into blockchain ETFs have stalled.

In large part, the lackluster flows into blockchain ETFs stem from bitcoin's equally lackluster performance.

As the most visible application of blockchain technology, bitcoin has become a bellwether for the technology: Where bitcoin goes, so too go blockchain ETFs.

After bitcoin's explosive run in 2017, where the per-coin price skyrocketed 14-fold, the cryptocurrency plummeted. Over the course of 2018, bitcoin fell to a low of $3,500, down 82% from its all-time high of $19,511. Since November, bitcoin has traded mostly range-bound between $3,500 and $4,200 (read: "What's Going On With Bitcoin ETFs?").

Speculative interest in bitcoin also appears to be waning, as pump-and-dump scandals and reports of wildly exaggerated volume in the cryptocurrency markets have spooked retail investors. Chipmakers Nvidia (NVDA) and Advanced Micro Devices (AMD) reported steep sales declines for their bitcoin-mining hardware, while Wall Street firms Goldman Sachs (GS), Citigroup (C) and Morgan Stanley (MS) have all quietly backed away from cryptocurrency trading.

Even volume for bitcoin futures has fallen: In December, open interest in Cboe bitcoin futures had declined by two-thirds since March, reported Bloomberg.

Oldest Blockchain ETF Also Biggest

Without interest from bitcoin speculators to drive flows, blockchain ETFs struggled to attract investment dollars in 2018. As such, first-mover status has ended up becoming a make-or-break factor.

In fact, assets invested in blockchain ETFs appear to be tied not to performance but inception date, with the most recent ETFs launched having the fewest assets invested:

 

Assets Of Blockchain ETFs
Ticker Fund AUM ($M) Flows Since Inception ($M) Inception Date
BLOK Amplify Transformational Data Sharing ETF $117.96 $142.84 1/16/2018
BLCN Reality Shares Nasdaq NexGen Economy ETF $85.93 $90.60 1/17/2018
LEGR First Trust Indxx Innovative Transaction & Process ETF $46.18 $40.22 1/24/2018
KOIN Innovation Shares NextGen Protocol ETF $10.01 $7.52 1/30/2018
BKC REX BKCM ETF $5.32 $3.79 5/16/2018
BCNA Reality Shares Nasdaq NexGen Economy China ETF $1.93 $2.40 6/20/2018

Tables sources: ETF.com, FactSet; data as of Jan. 23, 2019

 

BLOK, the first blockchain ETF to launch, has $118 million in AUM, which is $30 million more than its next nearest competitor, the Reality Shares Nasdaq NexGen Economy ETF (BLCN), which launched one day later. BLCN has fallen 15% over a one-year period, compared with BLOK's 23% decline.

Yet compare both funds to the Innovation Shares NextGen Protocol ETF (KOIN), which is the best-performing ETF in the segment. Though that ETF is down only 5% since its inception (it launched two weeks after BLOK and BLCN), it has only amassed $10 million in assets so far.

Will investor interest in blockchain ETFs ever revive, or is all the money that was ever going to go into blockchain ETFs already there? Only time—and maybe a rebound in bitcoin prices—will tell.

Contact Lara Crigger at [email protected]

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