By Philip van Doorn
Bitcoin and other cryptocurrencies can be among the most volatile securities trading today.
A safer way to invest in cryptos and blockchain-technology companies is through exchange traded funds.
The Amplify Transformational Data Sharing ETF BLOK is, by far, the largest ETF focused on cryptocurrencies and companies that use or develop blockchain technology. It has $1.3 billion in assets and is actively managed. The second-biggest ETF in the space is the Siren Nasdaq NexGen Economy ETF BLCN , which is passively managed — it follows an index — and has $291 million in assets. Both ETFs were established on Jan. 17, 2018. There’s more about each of them below.
Digital currencies — risks and rewards
Before digging into the blockchain ETFs, consider the risks of bitcoin and other digital currencies beyond volatility. For example, if you hold bitcoin in a digital wallet, make sure you don’t lose your password. One investor lost access to an account with 7,002 bitcoin in 2012 , according to Yahoo Finance. That equates to more than $327 million, based on bitcoin’s /zigman2/quotes/31322028/realtime BTCUSD -2.04% settled price of $46,777 on Sept. 7.
There have also been difficulties for people who wish to trade cryptocurrencies on days of high volatility and reports of hacked accounts and poor customer servic e at Coinbase Global Inc. /zigman2/quotes/225893452/composite COIN -3.48% , with customers unable to recover lost bitcoin.
Coinbase has said only 0.01% of its customers have been affected by “account takeovers,” and analysts covering Coinbase’s stock are believers in the company. Among 24 analysts polled by FactSet, 16 rate the stock a “buy” or the equivalent. On Sept. 7, Needham analyst John Todaro initiated his coverage of Coinbase with a “buy” rating and wrote that the company “has done a good job of offering new assets and new products in a regulatory compliant manner, and is well on its way to becoming a one-stop shop for crypto financial services.”
Here’s how the Amplify Transformational Data Sharing ETF /zigman2/quotes/204122720/composite BLOK -2.06% and the Siren Nasdaq NexGen Economy ETF /zigman2/quotes/208017739/composite BLCN -1.72% have performed since they were established, against the price of bitcoin itself, in U.S. dollars:
Bitcoin has had the best performance on the chart, rising 322% since Jan. 17, 2018, with BLOK next, returning 159%, followed by BLCN, at 104%. Of course, we cannot predict the direction of bitcoin or other digital currencies, but the chart shows how much more volatile bitcoin has been than these ETFs.
To further illustrate the volatility, check out this chart showing performance of the ETFs’ first two years:
Starting from Jan. 17, 2018, bitcoin was down as much as 71% through Dec. 14, 2018. For the complete two-year period, it was down 18%. Meanwhile, BLCN returned a positive 14% and BLOK was up 1%. The ETFs have been less volatile.
Once again, here are total return comparisons for the two ETFs, bitcoin and, for reference, the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY -0.89% and the Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ -0.67% , which tracks the Nasdaq-100 Index /zigman2/quotes/210598364/realtime NDX -0.59% , for various periods:
|Fund or index||Total return – 2021 through Sept. 8||Total return 1 year||Total return – 2 years||Total return – 3 years||Total return – Jan. 17, 2018, through Sept. 8, 2021|
|Amplify Transformational Data Sharing ETF /zigman2/quotes/204122720/composite BLOK||170%||113%||177%||164%||159%|
|Siren ETF Trust Siren Nasdaq NexGen Economy ETF /zigman2/quotes/208017739/composite BLCN||88%||44%||106%||113%||104%|
|Bitcoin (CME) Continuous||58%||365%||345%||628%||322%|
|SPDR S&P 500 ETF Trust||44%||37%||57%||66%||72%|
|Invesco QQQ Trust||81%||42%||101%||115%||136%|
BLOK is rated four stars (out of five) by Morningstar, while BLCN has a three-star rating. Since it was established, BLOK has more than doubled the return of SPY, and has outperformed QQQ handily.
Going back to the second chart, above, which emphasizes bitcoin’s plunge in 2018, you can see that BLCN fared better than BLOK through that decline and for that two-year period.
It may be good to consider how likely you would have been to wait out that difficult period while holding bitcoin. A broader investment in blockchain technology, with exposure to cryptocurrencies, may fit your risk tolerance better, while still giving exposure to this technological phenomenon.