Market Overview

Bouncing Back To Blockchain ETFs

Bouncing Back To Blockchain ETFs

The Securities and Exchange Commission bars fund issuers from using the word “blockchain” in fund names, but there are some exchange traded funds that are positioned as blockchain funds.

The oldest of those funds is the actively managed AMPLIFY TRANSFORMATIONAL DATA SHARING ETF (NYSE: BLOK).

What Happened

While bitcoin, the largest digital currency by market capitalization, has recently given back some of its May gains, BLOK has been mostly steady. Blockchain is the digital ledger used to record cryptocurrency transactions, but its applications span far beyond the world of digital currencies.

Perceived correlations between bitcoin and blockchain equities may appear logical, but BLOK has been a steadier play than the biggest crypto this year, rising almost 19 percent.

Why It's Important

Like other transformative technologies, such as 5G or Internet of Things (IoT), real world applications of blockchain are still in their formative stages, putting the investment thesis for blockchain in the same boat.

“Blockchain is the least mature of the six transformative technologies tracked by Digital Orbit,” said IHS Markit in a recent note. “Complex and largely confined in application to the financial sector, Blockchain together with 5G had the lowest scores in readiness, one of Digital Orbit's two key measures. The low scores meant that both Blockchain and 5G were considered least likely for adoption by industry.”

Many BLOK holdings are credible companies with impressive rates of adoption across multiple industries, such as Square Inc. (NYSE: SQ) and International Business Machines (NYSE: IBM).

“Worth noting is that both industry participants and IHS Markit analysts were largely in agreement that Blockchain's impact will be significant—with the normally more cautious IHS Markit analyst collective awarding Blockchain with scores even higher than those from the participatory industry group,” said Markit.

Eight industry groups are represented in BLOK with internet, financial services and semiconductors combining for about two-thirds of the fund's weight.

What's Next

Expect exponential growth for the blockchain, led in large part by the financial services sector.

“The business value in 2018 of Blockchain across all industry verticals was estimated by IHS Markit to be worth $5 billion, of which 72% derived from the financial sector,” according to IHS Markit. “But although the financial sector could be credited for launching blockchain into the mainstream, IHS Markit believes that other industries will be the biggest drivers in the upcoming years. By 2030, the Blockchain market will be worth approximately $2 trillion.”

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