Are the new index funds worthwhile?

Shareholders can also be crypto fans. Accordingly, ETFs that map public companies from the crypto industry can be offered. With VanEck and Bitwise, two issuers have now found each other in May who have implemented exactly this. How much crypto is really in the two ETFs and how they differ.

Some applicants for a Bitcoin ETF may be reminded of the Rolling Stones song “You Can’t Always Get What You Want”. So far, no Bitcoin ETF application has been approved by the American securities regulator SEC. In order to shorten the waiting time a bit and to set up ETFs with crypto-reference already today, two new stocks or blockchain ETFs ventured onto the market this May. Once the VanEck Digital Assets Equity ETF (DAPP) and the Bitwise Crypto Industry Innovators ETF (BITQ). Instead of Bitcoin, they securitize numerous companies that are related to the crypto industry. So it is a classic equity ETF that, in contrast to the cryptocurrency ETF, can be approved quite easily.

Demand creates its supply

It should be easy for both issuers to record enormous inflows of funds in a very short time. But as with other ETFs on particularly innovative topics, the question always arises as to what is actually included. So it happens that tempting-sounding ETFs are set up to map a future industry, but ultimately mainly companies from the old economy appear in the fund. Often there is a lack of sufficient diversification, so that companies find their way into the fund, which basically do not have much to do with the topic.

How much crypto is in the ETFs

When does a company count as a crypto company? While this question is quite easy to answer with an ETF for automotive suppliers or food producers, this is not entirely the case with the crypto ETF. You can find MicroStrategy in both ETFs. Apart from the fact that it has invested a not inconsiderable part of its reserves in Bitcoin, the company has so far not really been able to prove a business connection to the crypto industry. The same applies to the company Tesla, which can be found in the Bitwise ETF.

Graphics card manufacturers can also be found in both ETFs. With regard to crypto mining, positions such as Nvidia or Taiwan Semiconductor are quite understandable. According to VanEck, the listed companies should generate at least 50 percent of their sales with the digital asset business. For the vast majority of companies, this should be easily achieved. However, this high proportion cannot be fully understood with a Nivdia or MicroStrategy.

Gold analogy helps

If you want to invest in gold or other precious metals, you can buy gold or stocks in companies that mine gold. Accordingly, gold mining equity ETFs also have a permanent place in the portfolios of some gold investors. This mining approach seems to have caught on with the two ETFs as well. A not inconsiderable part of the companies is established in Bitcoin mining. The mining companies Marathon Digital Holdings, Riot Blockchain and Bitfarms can be found in both ETFs.

Copied from bitcointreasuries.org?

Both ETFs speak of a high proportion of so-called “pure play” companies. This means companies that have their main business purpose purely in the targeted industry, i.e. the crypto industry. Through some mining companies, exchanges such as Coinbase or Bitcoin Group, and crypto asset managers such as Galaxy Digital or Voyager Digital, both ETFs achieve this investment purpose. Those looking for a high correlation to the crypto sector will be well served with both ETFs.

Due to the still small selection of pure crypto-share companies that can be publicly traded on stock exchanges, the selection seems downright simple. One might assume that the ETF executives simply agreed with the lack of alternatives bitcointreasuries.org stopped by and availed of the largest positions there. On bitcointreasuries.org the companies that own the most Bitcoin are listed. The composition of both ETFs, which are fundamentally very similar, is anything but complex or diverse in the manageable market environment.

Bitwise BITQ vs. VanEck Digital Assets Equity

Even if both ETFs are very similar in their composition, there are still minor differences. The Bitwise ETF with 30 positions is slightly more diversified than the VanEck ETF with 26 positions. On the other hand, Bitwise also has more companies that are a little less “pure play”. For example, you can also find the CME Group or Signature Bank in the BITQ. Both companies also offer crypto services, but to a relatively small extent in terms of total sales.

As expected, the costs of both ETFs are within reasonable limits, even if the VanEck (TER 0.65%) does slightly better than the Bitwise ETF (TER 0.85%). If you compare the concentration on the top 10 holdings compared to the overall portfolio, then the difference should be negligible. At VanEck, the 10 largest positions together make up 61.8 percent of the total portfolio, while Bitwise has a slightly higher concentration of 63.5 percent.

For German investors, however, there is one more distinguishing feature that should not be neglected. While the VanEck ETF is listed on several German stock exchanges and should be easily acquired through most broker providers, this is not the case with the BITQ. The Bitwise ETF seems initially only intended for the American market and is currently only available on the NYSE Arca. So it might not be easy for German investors to get hold of the Bitwise ETF.

The alternative: Invesco Elwood Global Blockchain ETF

Anyone looking for another blockchain ETF alternative to the VanECK ETF could also go with the Invesco Elwood Global Blockchain ETF find a good candidate. The ETF can be traded on most German stock exchanges and has been on the market since March 2019. With 50 positions, this ETF is even more diversified than its predecessors. The concentration on the top 10 holdings is therefore relatively low at just under 40 percent. The fund volume of over one billion US dollars is also very impressive.

This is only the personal opinion of the author. No investment advice or buy or sell recommendation is given.