Investing in a blockchain ETF could mean getting in on the ground floor of the next Amazon, says National Bank Financial’s Daniel Straus, who argues that because blockchain is so new, it’s anybody’s guess which of today’s companies will be best at taking advantage of the technology.
The public was introduced to blockchain early last year when Bitcoin and the rest of the cryptocurrencies started shooting up in price. And while digital currencies are the most well-known application of the distributed ledgers called blockchains, their wider impact on the financial sector and beyond is still to come — which makes it all the more attractive to own a part of the space through a diversified investment like an exchange-traded fund (ETF), says Straus, head of ETF research and strategy at National Bank Financial.
“It’s kind of an infant technology in an infant sector,” Straus told BNN Bloomberg, “and when it comes to sectors of that nature, it’s difficult to build a product out of viable liquid securities because there really aren’t any pure-play, single blockchain public equities or at least not a good number of them that you could put together into a nice liquid, diversified portfolio and make an ETF out of it.”
“But there’s so much demand for this potentially transformative technology that ETF providers like Evolve, like Harvest, like First Block and First Trust and so on — they’ve come out with products that consist of companies that have signalled their interest in investing in blockchain, in using blockchain, in building some kind of technology platform that uses what is a cryptographically secure database and sharing technology which is fairly new but is very, very interesting,” he says.
Aside from financial institutions using blockchain, industries that rely on supply chain networks are said to be among the first to soon be taking advantage of the technology which can enable the secure and uncorrupted digital tracking of goods. Just yesterday, Jack Ma, the founder of e-commerce behemoth Alibaba, stated that while he finds there to be little utility in cryptocurrencies like Bitcoin, the value of blockchain for protecting data privacy and security is immense.
This week, a new blockchain ETF was added to the already crowded field with the name REX BKCM ETF, said to be comprised of approximately 33 blockchain- and cryptocurrency-related companies and launched by investment firm BKCM founder and CEO Brian Kelly.
“I get asked all the time on how to invest in blockchain technology without dealing with storage, the fears of hacking, hedge funds, etc. My hope is the BKC ETF can provide this desired equity allocation to institutions and individuals alike,” Kelly said.
Straus argues that the so-called blockchain revolution is likely to take place much like the Internet did, meaning that although many people read the tea leaves correctly and predicted that the Internet would have a huge impact on modern society, the businesses that ultimately benefitted from the then-new tech weren’t always the first ones noticeable in the space.
“I think that a lot of early investors to the Internet were right in the sense that this technology was going to pervade every aspect of life and create untold wealth, but if you had piled into, you know, pets.com and such before the burst of the NASDAQ bubble, you would’ve experienced quite a bit of pain along the way,” Strauss said.
“It’s true that most of the companies in these portfolios are some of the large cap, blue chip companies like Goldman & Sachs and Walmart who have signalled their interest in blockchain,” he says. “A lot of companies involved in this that are not pure-play crypto companies, they’re just tech companies or they’re banks or they’re financial companies, so that’s what you’re getting, this kind of multi-sector melange, which is an interesting concept.”
“It could pay off in the long term, but we think of it as a speculative position. I wouldn’t invest in it as a large co-holding for the long term, but put some money on the side and I imagine that you might be getting in early on the next Amazon,” he says.