First Trust, one of the largest issuers of smart beta exchange traded funds, is among the ETF sponsors looking to introduce a blockchain ETF. In a filing with the Securities and Exchange Commission (SEC), First Trust revealed plans for the First Trust Indxx Blockchain ETF.
Blockchain technology was originally developed as an accounting method for bitcoin. The First Trust ETF will track the Indxx Global Blockchain Index.
The news of the filing comes as price of one Bitcoin recovered Wednesday, surpassing $7,000 after dipping below $6,000 twice in the last week.
“Blockchain is a type of distributed ledger, or decentralized database that keeps continuously updated digital records of who owns a particular asset (e.g., cryptocurrency, contracts, information, etc.). It is kept and validated simultaneously by a network of computers, similar to a shared spreadsheet that no one person can change without the agreement of the others,” according to the First Trust SEC filing. “A blockchain is comprised of unchangeable, digitally recorded data in packages called “blocks.” These digitally recorded blocks of data are stored in a linear “chain.” Each block in the chain contains data (e.g., a transaction), that is cryptographically connected to the previous-block in the chain, ensuring all data in the overall “blockchain” has not been tampered with and remains unchanged.”
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Assuming the new blockchain ETF comes to market, it will trade on the Nasdaq. The First Trust Indxx Blockchain ETF will also exclude companies with market values of less than $200 million and those with average daily dollar volume of less than $1 million. The ETF could include stocks from the financial services, industrial and technology sectors.
“Blockchain technology is an entirely new and relatively untested technology which operates as a distributed ledger. The risks associated with blockchain technology may not emerge until the technology is widely used. Blockchain systems could be vulnerable to fraud, particularly if a significant minority of participants colluded to defraud the rest. Access to a given blockchain requires an individualized key, which, if compromised, could result in loss due to theft, destruction or inaccessibility,” according to First Trust’s SEC filing.
Earlier this month, Amplify ETFs and Reality Shares also filed plans for blockchain ETFs.
Cryptocurrency market capitalization has grown in recent years to $172 billion, with bitcoin representing more than 54 percent of that total, or $94 billion. The bitcoin spot market has also grown to trade roughly $1.5 billion in notional value each day.
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