As bitcoin and the broader cryptocurrency space age become more prominent parts of the investment lexicon, it’s not surprising that experts and market observers are attempting to understand what motivates bitcoin buyers.
Unraveling those mysteries could have implications for various exchange traded funds, including the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC). For much of bitcoin’s nearly 14 years of existence, the prevailing wisdom has been that those market participants embracing the digital asset are doing so on the basis that it’s a store of value, a la gold, or as an alternative to traditional banking systems.
However, a recent study conducted by the Bank of International Settlements (BIS) indicated that bitcoin’s price action is a primary impetus for investors getting involved with the largest cryptocurrency.
“We show that, due to price declines, an estimated 73-81% of retail investors have likely lost money on their initial investment. To establish a causal effect of crypto prices on adoption, we focus on two events that affected Bitcoin’s price without directly impacting crypto exchange app usage: the crackdown of Chinese authorities on crypto mining in mid-2021 and the social unrest in Kazakhstan, a country where many Bitcoin miners are located, in early 2022,” according to BIS.
Chastened investors who quickly lost capital on their initial bitcoin investments may want to consider alternative approaches beyond direct ownership of the digital coin. BLKC answers that bell. The Invesco ETF provides ample bitcoin exposure, by way of a large stake in the Grayscale Bitcoin Trust (GBTC).
However, BLKC, while crypto-correlated, offers investors exposure to 59 other holdings, and many of those stocks’ price action isn’t solely determined by goings-on in the crypto market. That’s good news for skittish investors, particularly when considering bitcoin’s history.
“Prices for cryptocurrencies have undergone multiple boom-bust cycles, together with ongoing entry by retail investors. To investigate the drivers of crypto adoption, we assemble a novel database (made available with this paper) on retail use of crypto exchange apps at daily frequency for 95 countries over 2015–22. We show that a rising Bitcoin price is followed by the entry of new users,” added BIS.
BLKC offers other advantages that may not be readily apparent to investors that aren’t yet familiar with the fund. For example, many of its equity holdings are quality names. In fact, roughly 10 of BLKC’s equity components are members of the Dow Jones Industrial Average. Perhaps surprisingly, nearly a third of the ETF’s member firms are also classified as value stocks.
vettafi.com is owned by VettaFi, which also owns the index provider for BLKC. VettaFi is not the sponsor of BLKC, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.
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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.