Exchange traded fund investors who are interested in a growing new market can consider the companies at the forefront of the digital asset ecosystem.
In the recent webcast, How to Invest in the Digital Assets Economy, John Patrick Lee, ETF Product Manager, VanEck, explained that a digital asset is an asset issued and transferred using distributed ledger or blockchain technology, which is comprised of cryptocurrencies, platforms, decentralized applications, and non-fungible tokens.
Specifically, cryptocurrencies are a type of digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.
Platforms consist of many services, representing a unique collection of software or hardware services of a company used to deliver its digital strategy.
Decentralized Applications are computer programs or applications that exist and run on a blockchain, or peer-to-peer network of computers
Lastly, Non-Fungible Tokens, or NFTs, are a digital file whose unique identity and ownership are verified on a blockchain.
Lee explained that there are many different business lines in the ecosystem. Digital transformation companies engage in a wide variety of business lines within the broader ecosystem, including payment gateways, hardware, crypto miners, exchange, crypto holding and trading, software and value added services, and banking and asset management.
Looking ahead, Edward Lopez, Head of ETF Product, VanEck, argued that digital assets usage and implementation, including cryptocurrency and decentralized applications, are projected to grow as global adoption continues. We have already witnessed revenues, number of users, and valuations of publicly-listed digital asset companies growing significantly in recent years.
Retail investors have been a significant supportive factor in the growth of the digital transformation. Lopez pointed out that the rise of the retail trader has led to a growth in retail trading platforms. Generational wealth transfer from Baby Boomers to Generation X and Millennials is currently underway. Additionally, new investing themes, like digital assets, eSports, and ESG, have proliferated in recent years.
Institutions are also getting in on the action. CME Bitcoin Futures have shown consistent, prolonged growth in volume over time, and CME Bitcoin Futures are used by institutions to gain access to Bitcoin as an investable asset class. Non-traditional finance companies like Tesla and MicroStrategy are are even investing their treasury reserves into digital assets.
To access this burgeoning opportunity, VanEck has come out with the targeted VanEck Vectors Digital Transformation ETF (DAPP), which can help investors focus on companies engaging in business of digital assets. DAPP tries to reflect the price and yield performance of the MVIS Global Digital Assets Equity Index, which is a rules-based modified capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of companies involved in digital assets.
The the MVIS Global Digital Assets Equity Index consists of companies that i) generate at least 50% of its revenues from digital assets projects; (ii) generate at least 50% of its revenues from projects that, when developed, have the potential to generate at least 50% of their revenues from digital assets or digital asset projects; and/or (iii) have at least 50% of its assets invested in direct digital asset holdings or digital asset project. The index may include semiconductor companies and online money payment companies to meet target component number.
The VanEck Vectors Digital Transformation ETF portfolio includes exposures to business lines including Holding and Trading 50.0%, Miners 45.4%, Banking 28.2%, Exchanges: 26.9%, Software and Services 26.7%, Hardware 22.9%, and Payment Gateways 18.5%.
Potential investors should keep in mind that the ETF does not include direct exposure to cryptocurrencies or derivatives designed to provide exposure to cryptocurrencies, including initial coin offerings (ICOs). The ETF also does not include tech conglomerates, financial services, and other companies with less than 50% of revenues from digital assets.
Financial advisors who are interested in learning more about the digital assets economy can watch the webcast here on demand.