Whether it’s bitcoin and ethereum or more speculative fare such as meme or joke coins, investors’ interest in the cryptocurrency space is on the rise.
Interest is one thing. Portfolio inclusion is something different altogether. One of the realities of the crypto realm is that direct ownership of digital assets, even credible coins like bitcoin and ether, simply is not appropriate for all investors.
Fortunately, there are other ways of access crypto, including via stocks. That objective is made easier with the VanEck Digital Transformation ETF (DAPP), an exchange traded fund that debuted earlier this year. DAPP’s objective is straightforward. It tracks the MVIS Global Digital Assets Equity Index and its 26 components, which are “companies that are participating in the digital assets economies,” according to VanEck. There are some benefits to the DAPP approach that crypto-curious investors might want to consider.
“Digital asset companies also generate cash flows related to their various business lines, while the vast majority of cryptocurrencies do not generate cash flows. For a user to make a profit on a bitcoin trade, the user has to sell bitcoin at a higher price than what it was bought for, which is not the same as a business-related cash flow,” says VanEck analyst Meghana Pakala. “Companies are also currently regulated, so investors can gain access to digital asset disruption in the known format of a traditional equity ETF wrapper.”
Examples of DAPP holdings include Coinbase (COIN), Marathon Digital Holdings (MARA), and Jack Dorsey’s Square (SQ), among others. The fund is relevant to investors who want crypto exposure and are apprehensive about the volatility that often comes with direct ownership.
On that note, many DAPP holdings are significantly more correlated to bitcoin’s price action than traditional technology stocks or the S&P 500. Said another way, DAPP gives investors an adequate taste of crypto without a potentially turbulent all-in commitment. It’s possible that the correlations could change over time as DAPP components move into widely known indexes, but for now and the foreseeable future, the VanEck ETF is a viable alternative to direct crypto exposure.
“The VanEck Digital Transformation ETF can provide exposure in a growth, disruption, innovation, or alternative sleeve, along with serving as a core-satellite allocation,” concludes Pakala. “These names are not in the broad market benchmarks (yet), and the return profile does indicate low correlation to the broad market. Investors receive diversification and potential for alpha over a longer time horizon. It’s also important to emphasize that the MVIS Global Digital Asset Equity Index is a new index without a long track record, and that correlations to both digital assets and broad equity benchmarks will most likely not remain static.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.