Industry Updates

VanEck blockchain product posts record annual ETF performance in 2023

DAPP was aided by Fed interest rate pauses

Lauren Gibbons

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VanEck’s blockchain equity strategy saw the highest ever annual returns for an ETF in 2023 as risk assets surged amid forecasts of a slowdown in interest rate hikes.

The VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) skyrocketed 277.3% in 2023, eclipsing impressive returns from the iShares MSCI Turkey UCITS ETF (ITKY) in 2022 and the iShares Global Clean Energy UCITS ETF (INRG) in 2020.

Softening US Consumer Price Index (CPI) coupled with first a slowing then a pausing of interest rate hikes from the Federal Reserve have been supportive to small blockchain and crypto mining companies, which rely on significant borrowing to fund growth.

Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, told ETF Stream: “This is definitely a record. Clean energy and Turkey ETFs had good years recently too, but we have not seen anything like this before.”

With the Fed expected to cut interest rates three times next year as US inflation continues to drop from 40-year highs, blockchain equity ETFs could be set to continue along a similar path this year.

DAPP is made up of 20 companies that track the MVIS Global Digital Assets Equity index. Coupled with Block and Coinbase, the ETF is predominantly made up of crypto miners such as Bitfarms, Riot Blockchain, Marathon Strategy, Hut 8 Mining Corp and Hive Blockchain Technologies.

Notably, the same ETF plummeted -84.2% in 2022, on the back of unrelenting rate hikes from the Fed and central banks across the globe.

This was a significant year for ITKY which jumped 112.4%, according to data from Bloomberg Intelligence.

This came as a result of Turkey managing to stage an unconventional turnaround in 2022. While many central banks implemented an unyielding cadence of rate hikes, Turkey bucked the trend and cut interest rates in an attempt to reignite consumer spending.

Contrasting other countries, President Recep Erdogen slashed interest rates from 19% in September 2021 to 9% last November to boost the economy and even fired central bankers who disagreed with his measures.

While this inevitably boosted Turkey’s stock market, inflation hit 84.4% in November versus 21.3% 12 months earlier while the Turkish lira is 36.5% down on the US dollar over the same period.

Other stellar yearly performances came from INRG which jumped 134.8% in 2020.

Towards the end of 2020, investors poured $157m into the ETF, in light of Biden outpacing Trump during the US election in key US states.

Momentum was further built when the sector saw a surge in investment toward the end of 2020 due to the election of President Joe Biden promising to solidify the country’s commitment to switching to renewable energy sources.

Policies including the American Jobs Plan and Inflation Reduction Act have seen $470bn of tax credits allocated to the roll-out of renewable energy utilities and energy storage in the US were also heavily attributed to the lifting of returns for BlackRock’s clean energy ETF in 2020.

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