Industry Updates

Blockchain ETFs start 2023 in electric form amid risk-on pivot

Blockchain equities surge as the price of bitcoin rallies by a third in two months

Jamie Gordon

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Blockchain ETFs have dominated returns tables in the early stages of the new year as the likelihood of a ‘soft landing’ recession prompts a return to risk-on investor allocations. 

According to data from justETF, the VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) surged 74.2%, the Global X Blockchain UCITS ETF (BKCH) jumped 56.1% and the Grayscale Future of Finance UCITS ETF (GFOF) hiked 45.7% between the turn of the year and 17 January. 

Interestingly, these strong returns continued across the theme – albeit with sizeable dispersion – with the WisdomTree Blockchain UCITS ETF (BKCN), ETC Group Digital Assets & Blockchain Equity UCITS ETF (KOIN) and Invesco CoinShares Global Blockchain UCITS ETF (BCHN) returning 35.5%, 23.1% and 15.4%, respectively, during the same period. 

This strong performance is an about turn from a challenging 12 months for blockchain equities where the crypto assets driving the theme either lost most of their value or capitulated entirely. 

Between November 2021 and 2022, for instance, bitcoin shed as much as 74% of its value, while the token attached to the third-largest crypto exchange in the world, FTX, has lost 97% of its value in the last three months, according to CoinMarketCap data

Tracking this difficult period for the asset class, longer-standing blockchain ETFs such as DAPP, KOIN and BCHN are still down 74.2%, 68.2% and 42.3% over the trailing twelve months, despite their strong start to 2023. 

However, the recent and sharp uptick could mark a significant turning point for the asset class, with a series of positive updates in broader markets prompting investors to return to more adventurous and thematic exposures. 

Last month, the US Federal Reserve slowed its rate of interest rate hikes to 0.50%, after hiking by 75 basis points – the sharpest single spikes since the turn of the century – at four consecutive meetings through 2022. 

Supporting the winding down of hawkish policy, last week’s US headline consumer price index reading for December was 6.5%, in line with expectations and its lowest since 2021. 

This positive shift is also playing out in Europe, with UK GDP growth turning positive at the end of 2022, while this week Goldman Sachs analysts revised their Eurozone GDP forecast for this year from -0.1% to 0.6%. 

Against this backdrop, the ‘most telegraphed recession’ base case many investment banks posted at the end of last year may now appear too bearish for some investors, with even the tech-stock-laden Nasdaq 100 index rallying 6.7% since the start of November last year. 

This positive momentum has now carried over into alternative exposures in crypto, with bitcoin up by almost a third during the same period, which has carried blockchain equities upwards as investors return to the asset class after months in the dark. 

Whether such form can continue is subject to the crypto industry not undergoing another scandal of FTX proportions and how much some negative data – such as large employers cutting jobs and weaker corporate earnings – are priced in by markets and investor sentiment.  

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