VanEck’s Blockchain ETF, the VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP), enjoyed notable success in 2023, delivering triple-digit returns due to its exposure to cryptocurrencies. Since the start of the year, DAPP has posted a 109% return, with an impressive 14.5% gain in just this week. Here are the details…
Cryptocurrency ETF surpasses all others
The success of DAPP can be attributed to its high beta, which reflects its sensitivity to the performance of cryptocurrencies. The ETF focuses on a basket of 20 companies tracked by the MVIS Global Digital Assets Equity index. These companies include prominent names such as Block and Coinbase, as well as crypto miners such as Bitfarms, Riot Blockchain, Marathon Strategy, Hut 8 Mining Corp and Hive Blockchain Technologies.
Crypto mining stocks increase returns on the underlying assets they target, similar to metal mining. As we reported as Kriptokoin.com, Bitcoin has experienced a decrease of 11.2% in the last 12 months, while it has recorded a significant increase of 62% this year. By contrast, DAPP yielded -19.1% and 109% returns over the same periods.
Kamil Sudiyarov, ETF product manager at VanEck, explained that the strong correlation between the stocks of the respective companies and the cryptocurrency market is very beneficial for DAPP. The ETF’s outstanding performance is attributed to its index structure, which aims to capture companies with significant revenue exposure to cryptocurrencies. Sudiarov stressed that this strategy works in both directions, because downturns can lead to more significant declines, but during favorable market conditions, DAPP develops.
Blockchain-focused companies are also in the focus of ETF
Some competing products, such as the Global X Blockchain UCITS ETF (BKCH), followed closely the success of DAPP with a return of 94.8 percent in 2023, while others, such as the Invesco CoinShares Global Blockchain UCITS ETF (BCHN), lagged behind with gains of only 13.4%. This discrepancy can be attributed to BCHN’s lower crypto beta. Rather than focusing solely on cryptocurrencies, BCHN aims to capture companies that are involved or have the potential to engage in Blockchain applications within or outside the crypto space. This approach includes companies that invest in or are adjacent to blockchain technology, such as South Korean communications firm Kakao, semiconductor companies TSMC and Intel, and mining company Rio Tinto.
The different return profiles of DAPP and BCHN remind investors that similar labels on ETFs can lead to very different products. It also highlights the ongoing lack of consensus on how to define and capture themes of the investable future. The outstanding performance of VanEck’s DAPP ETF in 2023 illustrates the potential rewards and risks associated with high beta exposure to cryptocurrencies. While investor allocations remain cautious, DAPP’s success serves as a testament to the lure of the blockchain and crypto space, as well as the importance of painstaking research and portfolio diversification to navigate this rapidly evolving market.
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