Looking Ahead To The SEC’s Blockchain ETF Ruling: Part One — An Introduction To Blockchain ETFs

Blockchain is revolutionary — the impact it has had on the digital landscape is immeasurable. It’s disrupted how we browse the internet, how we take care of our cybersecurity and how we perform online transactions. The scope for blockchain is huge, because it seems limitless. It can bend and adapt to any situation.

This year, blockchain entered the world of ETFs.

From humble beginnings, with just six blockchain-based ETFs currently on the market, it looks set to skyrocket with the US Securities and Exchange Commission (SEC) initially approving plans in July to make it easier for investment companies to bring new exchange-traded funds (ETFs) to market. It’s a huge step forward for the blockchain industry.

One of the challenges levied against investment in crypto is the risk factor. However blockchain ETFs can sidestep some of that risk by investing in the companies developing, or based on, blockchain technology rather than cryptocurrency itself.

We’re going to be looking at the basics and history of blockchain-based ETFs in this article, followed by an exploration on what the SEC’s landmark Blockchain ETF Ruling could mean for the future, in part two of this series.

What Are Blockchain ETFs?

Let’s start with the basics. What’s an ETF?

ETF stands for Exchange Traded Fund. Investopedia define it as:

A marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

So, in a nutshell the goal of an ETF is to provide investors with a benchmark return at minimal cost. ETFs often trade commission-free and are usually not subject to yearly capital gains taxes. An ETF is a cost-effective and simple way to enter the world of stocks.

So, how does blockchain become involved?

Blockchain ETFs exclusively invest in baskets of blockchain-based companies that have business operations in blockchain technology or those which invest or profit from it.

This is hugely beneficial to the cryptosphere, as all ETFs are traded via a brokerage firm on a stock exchange. This partnership between financial institutions and digital currency is a huge step towards legitimacy for crypto.

A Brief History Of Blockchain ETFs

Prior to 2018, there were no ETFs dedicated to the blockchain industry, however this year has seen the sector flourish, with six dedicated blockchain ETFs currently trading in the US:

• BLOK — Amplify Transformational Data Sharing ETF
• BLCN — Reality Shares Nasdaq NexGen Economy ETF
• LEGR — First Trust Indxx Innovative Transaction & Process ETF
• KOIN — Innovation Shares NextGen Protocol ETF
• BKC — REX BKCM ETF
• BCNA — Reality Shares Nasdaq NexGen Economy China ETF

Success for blockchain ETFs has been mixed, BLOK and BLCN had the first mover advantage, debuting in January and reporting $186.6 million and $124.5 million in assets under management, respectively. However, the market can still be seen as unstable, with the SEC expressing concern over the liquidity and proper valuation of the underlying Bitcoin futures that would be used by most of the funds. This led to virtually every Bitcoin ETF proposal being withdrawn.

However blockchain doesn’t begin and end with Bitcoin. There is a much wider market, and it does seem as though new blockchain ETFs are rising and working to settle some of the risk. And with the upcoming SEC ruling on the proposed rule change that could potentially let the Cboe BZX Exchange list a Bitcoin ETF penciled in for September 30th, it could mean the future is a lot brighter for blockchain ETFs.

Catch up with the second part in our series where we delve into what the SEC decision could mean for the future of crypto, and how it could potentially add a whole new aspect of legitimacy to blockchain.

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