Insights from the holdings of thematic Blockchain ETFs
Mirror mirror on the wall, which public companies of them all, will be first in reporting 10+% revenues from Blockchain?
Will it be payment Fintechs or conventional exchanges, or software tech companies or e-commerce companies?
In January I looked at thematic ETFs that were launched in 2018 or 2019 and chose to position themselves as focused on blockchain technologies. At the time, there were 8 such US ETFs with a total of $240million assets. Only 4 of them had managed to accumulate more than $10million and none of them had surpassed the $100million mark.
The percentage of companies included in these ETFs that earn revenues from Blockchain-related services, is still small. However, the holdings show trends and business goals of the companies included.
Blockchain ETFs of course, struggle to find pure Blockchain plays for their portfolios as most of the pure plays are still private (e.g. Consensys, Coinbase, Binance, etc). The public ones are either selling enterprise software but not exclusively and others are financial services providers that are growing their crypto offerings or transforming their business. This category is more interesting because they are emerging and have potential.
Interesting examples are Square who through its Crypto Cash App offerings has been reporting increasing revenues from offering Bitcoin to its retail clients. Square`s Q2 2020 earnings show that 45% of net revenues were from Bitcoin ($1.92billion total & $875million from Bitcoin). From the $875million Bitcoin revenues, $17 million were gross profit (c. 2%). Others are:
The ICE exchange that owns Baakt, the bitcoin futures exchange.
Overstock is a majority stakeholder of Tzero.
SBI holdings, the Japanese asset manager, that is growing a cryptocurrency trading business offering with cryptocurrency CFDs, and a blockchain-based digital stock exchange in the pipeline and multiple collaborations with Ripple.
Line, the Japanese messaging app with its reward token (LN) for traders which has just launched.
Kakao, the Korean messaging app too with its KLAY, also recently launched.
Pure plays are mainly:
Galaxy Digital (Novogratz`s company, GLXY in Toronto) is an investment company or better said a merchant bank. It offers various crypto investment products, trading and also uses its balance sheet too invest in blockchain ventures. Its 1yr return is 85% and ytd it is up x2.8 times. GLXY has a market capitalization of $220mil.
Mining companies also qualify but their performance hasn’t been that great. For example, Hut 8 Mining (TSXV:HUT) listed on the Toronto exchange too had a flat ytd return of and has dropped 50% over that past year.
In 2020, the Blockchain ETFs grew from $240million to $324million which doesn’t seem very exciting given the tech market runup. Two of them surpassed the $100million mark and 5 of them have accumulated more than $10million.
Comparison of Jan 2020 and Sep 11, 2020 data
It is more interesting to compare the top holdings of the two larger ones which have also provided superior returns ytd (31.5% and 27% respectively). Their y-o-y returns are good and closer (29% and 31% 1yr returns).
Their top holdings differ considerably. BLCN has a huge bet on Overstock with over 11% allocated to the stock. Overstock is one of many eCommerce stocks that had rallied since May. It started the year c. $8 and since April it started doubling continuously, reaching an all-time high in August c $106 and now trading at $65.
Square is the next big holding in BLCN at 3.43% whereas for BLOK it is the top holding at 4.62%.
BLCN`s top ten holdings are roughly 2% to each company whereas BLOK allocates more, c. 3+%.
BLOK has clearly more Asian holdings, like Z Holdings, Kakao, GMO, SBI, Rakuten, Digital Garage, Naver. BLCN has SBI and GMO also but then includes Xiaomi, Zhong An insurance.
Back in January, the top holdings of the two largest Blockchain ETFs were companies like the Japanese IT providers – GMO Internet and Digital Garage and allocations close to 5%. GMO is the company that has been preparing for the launch of the first Yen backed stablecoin – GYEN but this has not happened yet. Digital Garage another Japanese company (4819-TYO) with and an ADR. They teamed up with Blockstream last year to serve institutional needs in the sector in Japan.
In Europe, there is the Invesco Elwood Global Blockchain UCITS ETF listed on the LSE (BCHN:LN) with had $38 million AUM in January and now has $118million. The top holdings are similar to BLCN with an oversized Overstock position of 8.45%. However, the rest composition differs with two Taiwanese companies included (Taiwan Semiconductor manufacturing and Global Unichip Crop) and different Tech software providers.
In China, the Shenzhen Stock Exchange Blockchain 50 Index was launched in January and includes listed companies on its exchange in the Blockchain sector. The index is rebalanced twice a year. It has risen 23% ytd. Interchain Pulse (a Chines financial media group) reported that only 5 out of the 50 companies included in the index have actual revenues from blockchain. The top holdings are Ping An Bank, Midea Group – electricity company, East Money Information.
The Shenzhen Stock Exchange, has applied to the China Securities Regulatory Commission for permission to list a blockchain exchange-traded fund (ETF) benchmarked off its index.
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