Will Bitcoin Become an ETF Industry Growth Factor?

62e83075-1c1a-4fd7-8700-b98e67387b4b(Key Performance Indicators)

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INDEX PERFORMANCE DATA 

1/5/2018 1 Wk 1 Mo 3 Mo 6 Mo 1 Yr QTD YTD Since
Inception 
      Toroso ETF Industry Index 2.07% 3.39% 9.45% 17.06% 2.07% 2.07% 28.57%
S&P Financial Select Sector Index 1.79% 2.55% 8.47% 14.47% 23.28% 1.79% 1.79% 21.30%

Returns as of January 5, 2018.

Inception Date: April 4, 2017. Index performance is for informational purposes only and does not represent the ETF. Indexes are unmanaged and one cannot invest directly in an index.

TETF INDEX PERFORMANCE Vs. LEADING FINANCIAL INDEXES

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BITCOINS & ETF INNOVATION

In past TETF.index weekly updates, we talked about Key Performance Indicators (KPIs) that capture the growth of the ETF ecosystem. Toroso believes there are many factors driving growth, which can be bifurcated into two categories:

  1. Innovation Growth Factors: provide access, unique exposures/structures, and inventive revenue models.
  2. Client Alignment Growth Factors: low-cost, tax-efficient, liquid and transparent.

We have focused on “client alignment growth factors” like:
Trust
Transparency
Low Cost
Values (ESG)
Today, we scratch the surface on an Innovation Growth Factor” with potential ETF exposure to Blockchain and cryptocurrencies like Bitcoin.

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(Click to view Satoshi’s Original Whitepaper)

Cryptocurrency enthusiasts were excited to see Bitcoin futures launch last month. There are a wide array of opinions when it comes to cryptocurrencies as a whole. Ranging from tulip mania 2.0 to a replacement of paper currency, the consensus is hard to find. Some view it as a commodity, based on the cost of production, while others see more value in the platform that blockchain offers. It’s clear that investors want access to this unique asset class. As of January 1st, 2018, sixteen funds have filed with the SEC for some sort of cryptocurrency or Blockchain related investment product.

Issuer Filing Date Replication Strategy Status
Winkelovoss Bitcoin Trust 07-01-2013 Will store bitcoin Denied, but Appealing
Bitcoin Investment Trust 03-22-2016 Will store bitcoin Withdrew for Now
SolidX Bitcoin Trust 07-12-2016 Will store bitcoin Denied, Out of Race
Ethereum ETF 07-26-2016 Will store ether Awaiting SEC
VanEck Vectors Bitcoin Strategy ETF 08-11-2017 Will use bitcoin funds/futures Withdrew for Now
Rex Bitcoin Strategy ETF 08-23-2017 Will use bitcoin futures Awaiting approval
Rex Short Bitcoin Strategy ETF 08-23-2017 Will use bitcoin futures Awaiting approval
ProShares Bitcoin ETF 09-28-2017 Will use bitcoin futures Withdrew for Now
ProShares Short Bitcoin ETF 09-28-2017 Will use bitcoin futures Withdrew for Now
Evolve Bitcoin ETF (Canada) 09-29-2017 Will use bitcoin futures Awaiting approval
First Trust Bitcoin ETF 12-11-2017 Will use bitcoin futures Awaiting approval
Amplify Blockchain Leaders ETF 11-01-2017 Equity basket Awaiting approval
RealityShares Nasdaq Blockchain ETF 11-02-2017 Equity basket Awaiting approval
InnovationShares Blockchain Innovators ETF 11-13-2017 Equity basket Awaiting approval
First Trust Indxx Blockchain ETF 11-13-2017 Equity basket Awaiting approval
Horizons Blockchain 11-22-2017 Equity basket Awaiting approval

Source: Bloomberg

ETFs share a common misconception with cryptocurrencies in that the crowd views exponential growth as a sign of a bubble. Looking at the top 5 cryptocurrencies by network value, they only add up to $450 billion in AUM. This is not to underplay their exponential growth, as this number on 12/31/2016 was a meager $16.2 billion in AUM. Below we graphically display this so-called “bubble” in comparison to the market cap growth of the FAANG+ (FB, AAPL, AMZN, NFLX, GOOG). This is not intended to dispel the evidence of a bubble in cryptocurrencies, but rather to provide context to the growth potential of paradigm-shifting technologies.

FAANG vs CRYPTO Market Cap (in millions)

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Many investors confuse the network value of public blockchains with the market caps of public companies. Public Blockchains are not companies, but rather protocols that allow to transfer the benefits of production and utilization value to the developers rather than the application owners that represent FAANG+. This transfer of power and wealth is achieved through cryptocurrency tokens as incentives and toll roads for developers and miners.

To put the cryptocurrency space into perspective lets view it against a few other large asset classes:

MARKET CAP VALUE (in millions)

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ETFs are attempting to provide access to this potential growth similar to the way they transformed access to gold with GLD. In fact, the first filing from Gemini and the Winklevoss brothers envisioned a Bitcoin ETF approach similar to GLD. (we covered this in-depth in February of 2017)

Now there are filings to own Bitcoin futures, long and short, filings to own Bitcoin directly, filings for blockchain related companies, and even a filing for an Ethereum ETF. It’s clear that investors are seeking exposure to cryptocurrencies and blockchain in their traditional investment accounts.

As innovations like Blockchain and Bitcoin continue to gain momentum, the ETF ecosystem has sought to provide access. Blockchain, the technology used to record and store transaction in cryptocurrencies such as Bitcoin, has an increased potential for use in a wide array of applications. Many investors believe blockchain is a foundational technology still in its infancy that is transforming the cryptocurrency space and data security. It is not necessarily a matter of time, but of a regulatory process before cryptocurrency and/or a blockchain ETF are produced and traded.

For more information on Blockchain and Cryptocurrencies, we suggest listening to the Hashpower Podcast series.

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Additionally, just like Patrick O’Shaughnessy, the host of Hashpower states, we do not recommend investing in the space without months of research or professional advice.

TOROSO IN THE NEWS

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ETF LAUNCHES – New Releases (last 3 weeks)

Arrow Dogs of the World ETF DOGS 1/2/2018
ALPS Disruptive Technologies ETF DTEC 12/28/2017
Arrow DWA Country Rotation ETF DWCR 12/28/2017
Natixis Loomis Sayles Shrt Dur Inc ETF LSST 12/27/2017
Innovator IBD® ETF Leaders LDRS 12/20/2017
WisdomTree ICBCCS S&P China 500 WCHN 12/19/2017
WisdomTree Balanced Income WBAL 12/19/2017
James Biblically Responsible Inv ETF JBRI 12/19/2017
SPDR® Kensho Intelligent Structures ETF XKII 12/18/2017
SPDR® Kensho Smart Mobility ETF XKST 12/18/2017
SPDR® Kensho Future Security ETF XKFS 12/18/2017

ETF OF THE WEEK

The ETF launch of the week is MJX the ETFMG Alternative Harvest ETF. Even though it is new it is not on the list of launches because the sponsor converted a Latin American Real-estate ETF into a strategy focused on the marijuana companies. We are certainly not endorsing the fund but the asset growth has been quite impressive raising $260 million in the first few days of trading.

TETF INDEX UNDERLYING TOP/BOTTOM 10 HOLDINGS PERFORMANCE

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