Blockchain ETF Definition

Written by Sean GraytokUpdated: 23rd Feb 2021
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Blockchain ETFs allow investors to tap into the rise of cryptocurrencies, such as bitcoin, litecoin, and other altcoins.

Find out what a Blockchain ETF is, how they work, and which ones you should consider investing in.

What is a Blockchain ETF?

A Blockchain ETF is an exchange-traded fund that invests in companies that use or develop blockchain technology. Some blockchain ETFs follow an index and others invest directly in blockchain-based companies.

Blockchain ETFs are thematic or sector-specific ETFs that enable investors to get niche exposure to a rising industry while maintaining diversification.

Moreover, blockchain ETFs are a great opportunity for those who want exposure to the broader crypto industry but do not want to own bitcoin or another altcoin. After all, individual cryptocurrencies are volatile.

Learn More:Best Blockchain ETFs

Understanding a Blockchain ETF

Blockchain technology was invented in 2008 with the creation of Bitcoin. It is the underlying technology that powers cryptocurrency, but its potential applications beyond crypto have created quite the buzz on Wall Street.

Blockchain is a public ledger of transaction history that is permanent and verifiable. The technology enables peer-to-peer transactions to occur without the need for a central approving authority.

This technology may disrupt the legal, medical, and financial industry as we currently know it. Blockchain may remove middlemen, such as lawyers and bankers, and deliver information or value directly from the end user source.

It is important to note that the Securities Exchange Commission (SEC) has approved Blockchain ETFs but have not yet approved Bitcoin ETFs. Blockchain technology is not limited to the financial industry, whereas bitcoin is not.

Related:How to Buy Bitcoin

Is a Blockchain a Good Investment?

Blockchain is still in its infancy stages of application. While more resources have been allocated to its development, its adoption at scale is yet to be seen.

Established companies like Visa and Mastercard would have to shift their network’s entire foundation to make the switch to Blockchain. Although this shift appears inevitable, it will still require an ambitious company to lead the transition.

Here are a few practical uses of blockchain technology:

While these are just a few examples of blockchain technology being used today, the future is exciting. Investors who invest in Blockchain before mass adoption will be rewarded.

What is the best way to invest in Blockchain Technology?

Many companies directly develop blockchain technology, like Riot Blockchain Inc., and others are block-adjacent, like IBM and Intel.

Then, publicly-traded firms invest in blockchain-based companies, like Silvergate Capital and Galaxy Digital Holdings.

Finally, a handful of Blockchain ETFs, such as BLOK, BLCN, KOIN, and LEGR, track a blockchain index’s performance or invest in anywhere between 50-100 companies.

The best way to invest in blockchain technology depends on the investor’s appetite for risk. Picking an individual blockchain company is riskier than choosing a blockchain ETF, but the returns may be much larger.

Additionally, investors should consider the differences between a pure blockchain play and a blockchain-adjacent investment strategy. Companies like Google and Amazon have a vested interest in Blockchain, but it is one of their many pursuits.

Next Steps: Best Online Stock Brokers

What is the best Blockchain ETF?

Amplify Transformational Data Sharing ETF (BLOK) was up 89% in 2020 and the best performing blockchain ETF of the year. It also has the highest dividend yield and AUM of the top Blockchain ETFs.

Other noteworthy blockchain ETFs include BLCN, KOIN, and LEGR. Their holdings often overlap, but they differ in their structure.

For example, BLCN tracks an index created by a committee while KOIN uses a computer algorithm to select companies.

Bottom Line: Blockchain ETF

Ultimately, investing in a blockchain ETF is a long-term play. That said, the crypto industry is currently experiencing a strong bull market. It is becoming a legitimate alternative to Gold and other valuable minerals. Although, blockchain ETF investors need to pay attention to potential Government regulation.

It is still up in the air how the U.S. Government will approach cryptocurrency, so this development may pose strong headwinds soon.

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Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.