VanEck Digital Transformation ETF SHORT
Year-to-date, bitcoin prices are up 72.7%, and crypto ETFs like the Valkyrie Bitcoin Miners ETF (WGMI C+) are also impressively up 128.9%. WMGI is currently the highest performing equity ETF YTD, while the remaining top 10 ETFs are all also crypto-related ETFs. This outperformance has been catching investor interest, but flows haven’t been matching up. WGMI has only $5.7 million net inflows this year, which places it at 647 out of 1,969 equity ETFs — just barely in the top third.
Some investors may still be reluctant to invest in crypto despite bitcoin prices rising back to near the $30,000 level, while some long-term crypto fans are still adding to their crypto allocations. Even for those that aren’t huge believers in the crypto industry, crypto ETFs can be a simple, familiar way to invest in a high-reward/high-risk portion of a market — which may fit into many investor portfolios in small allocations of 1%–5%. This note looks at a brief history of crypto ETFs, including what ETFs are currently available, while explaining some of the key differences between the different types of crypto ETFs.
What Crypto ETFs Currently Exist?
Before I describe the different types of crypto ETFs, it is useful to look at the crypto ETF industry timeline.
The Ark Next Generation Internet ETF (ARKW C+), which holds the Grayscale Bitcoin Trust (GBTC) and Coinbase Global (COIN) as its largest holdings, can be traced back to its inception in September 2014. Back then, the ETF was called the ARK Web x.0 with top holdings like LinkedIn (eventually acquired by Microsoft (MSFT), Netflix (NFLX), and Amazon (AMZN).
True blockchain ETFs didn’t appear until a few years later in 2018. The Amplify Transformational Data Sharing ETF (BLOK B-) and the Siren Nasdaq NexGen Economy ETF (BLCN C) were the first blockchain ETFs to launch on January 17, 2018 (although BLOK was actually the first to file for registration). After a couple of more launches, things were relatively calm for several years, until 2021 when more unique products began to appear partly due to higher Bitcoin prices and more investor interest (see chart below).
The VanEck Digital Transformation ETF (DAPP C+) kicked off a new wave of launches in April 2021, but it wasn’t until May 2021 that the Bitwise Crypto Industry Innovators ETF (BITQ ) was launched as the first ETF with crypto in its name. Several other crypto equity ETFs appeared as bitcoin headed toward another peak. In October 2021, another significant milestone occurred — the ProShares Bitcoin Strategy ETF (BITO ) was launched, which was the first futures-based ETF. This was followed by other futures-based bitcoin ETFs like the Valkyrie Bitcoin Strategy ETF (BTF ) and the VanEck Strategy ETF (XBTF ). The ProShares Short Bitcoin Strategy ETF (BITI ), which is the first and only inverse futures bitcoin ETF was launched in June 2022.
Since then, only a few ETFs have launched — the latest was launched on September 30, 2022. In 4Q22, the crypto industry hit a rut with the collapse of FTX and bitcoin prices falling below $20,000. With lower prices and some investor reluctance, several ETFs have closed in 2023. The Viridi Bitcoin Miners ETF (RIGZ) closed on January 4, 2023, followed by the Volt Crypto Industry Revolution and Tech ETF (BTCR), which closed on January 17, and the VanEck Digital Assets Mining ETF (DAM), which closed on April 24. With the closures of RIGZ and DAM, WGMI is now the only bitcoin mining ETF in the U.S. Despite the number of closures, there are still around 25 crypto ETFs in the U.S. which serve various purposes and can provide investors with different options. A few of these types are listed below.
Some investors may still be reluctant to invest in crypto despite bitcoin prices rising back to near the $30,000 level, while some long-term crypto fans are still adding to their crypto allocations. Even for those that aren’t huge believers in the crypto industry, crypto ETFs can be a simple, familiar way to invest in a high-reward/high-risk portion of a market — which may fit into many investor portfolios in small allocations of 1%–5%. This note looks at a brief history of crypto ETFs, including what ETFs are currently available, while explaining some of the key differences between the different types of crypto ETFs.
What Crypto ETFs Currently Exist?
Before I describe the different types of crypto ETFs, it is useful to look at the crypto ETF industry timeline.
The Ark Next Generation Internet ETF (ARKW C+), which holds the Grayscale Bitcoin Trust (GBTC) and Coinbase Global (COIN) as its largest holdings, can be traced back to its inception in September 2014. Back then, the ETF was called the ARK Web x.0 with top holdings like LinkedIn (eventually acquired by Microsoft (MSFT), Netflix (NFLX), and Amazon (AMZN).
True blockchain ETFs didn’t appear until a few years later in 2018. The Amplify Transformational Data Sharing ETF (BLOK B-) and the Siren Nasdaq NexGen Economy ETF (BLCN C) were the first blockchain ETFs to launch on January 17, 2018 (although BLOK was actually the first to file for registration). After a couple of more launches, things were relatively calm for several years, until 2021 when more unique products began to appear partly due to higher Bitcoin prices and more investor interest (see chart below).
The VanEck Digital Transformation ETF (DAPP C+) kicked off a new wave of launches in April 2021, but it wasn’t until May 2021 that the Bitwise Crypto Industry Innovators ETF (BITQ ) was launched as the first ETF with crypto in its name. Several other crypto equity ETFs appeared as bitcoin headed toward another peak. In October 2021, another significant milestone occurred — the ProShares Bitcoin Strategy ETF (BITO ) was launched, which was the first futures-based ETF. This was followed by other futures-based bitcoin ETFs like the Valkyrie Bitcoin Strategy ETF (BTF ) and the VanEck Strategy ETF (XBTF ). The ProShares Short Bitcoin Strategy ETF (BITI ), which is the first and only inverse futures bitcoin ETF was launched in June 2022.
Since then, only a few ETFs have launched — the latest was launched on September 30, 2022. In 4Q22, the crypto industry hit a rut with the collapse of FTX and bitcoin prices falling below $20,000. With lower prices and some investor reluctance, several ETFs have closed in 2023. The Viridi Bitcoin Miners ETF (RIGZ) closed on January 4, 2023, followed by the Volt Crypto Industry Revolution and Tech ETF (BTCR), which closed on January 17, and the VanEck Digital Assets Mining ETF (DAM), which closed on April 24. With the closures of RIGZ and DAM, WGMI is now the only bitcoin mining ETF in the U.S. Despite the number of closures, there are still around 25 crypto ETFs in the U.S. which serve various purposes and can provide investors with different options. A few of these types are listed below.
Even as anticipation mounts ahead of the US jobs data due later today, investors may be bracing for more volatility in the week ahead thanks to another round of risk events.
Economic Calendar for Next Week
All eyes will be on the incoming US inflation data as well as speeches from financial heavyweights and other risk events which could spark some fresh action across markets.
Monday, May 8
UK bank holiday honouring Charles III coronation
EUR: Germany industrial production, ECB Chief Economist Philip Lane speech
Tuesday, May 9
CHN: China trade, money supply
AUD: Australia consumer confidence
EUR: ECB Chief Economic Philip Lane speech (IMF)
USD: Fed New York President John Williams speech
US President Joe Biden debt ceiling talks
Wednesday, May 10
EUR: Germany April CPI (final)
USD: US April CPI
Thursday, May 11
CNH: China PPI, CPI
GBP: UK BOE rate decision & press conference
USD: US PPI, initial jobless claims
G7 finance ministers meet in Japan
Friday, May 12
GBP: UK Industrial production, Bank of England Chief Economist Huw Pill speech
USD: University of Michigan consumer sentiment, Fed speeches
The April US consumer price index (CPI) report published on Wednesday 10th May will be exactly one week after the Federal Reserve raised rates and signalled a pause in further increases.
Given how Fed Chair Jerome Powell has left the door open to further tightening if incoming economic data warrants, this could add more spice to the report.
CPI Forecasts
Markets are forecasting:
CPI year-on-year (April 2023 vs. April 2022) to remain steady at 5.0%.
Core CPI year-on-year to cool 5.4% from the 5.6% in the prior month.
CPI month-on-month (April 2023 vs March 2023) to rise 0.4% from 0.1% in the prior month.
Core CPI month-on-month to cool 0.3% from the 0.4% in the prior month.
Ultimately, further evidence of inflation slowing down could reinforce expectations around the Federal Reserve pausing and eventually cutting interest rates. Should inflation remain sticky, this could rekindle bets around the Fed leaving interest rates higher for longer.
Expectations are rising over the Federal Reserve cutting interest rates with the chance of a 25-basis point cut in July currently priced at 53%, according to Fed funds futures! It will be interesting to see how the incoming inflation data shapes market expectations around the central bank’s next move.
How Might the Markets React to the CPI Report?
With all of the above discussed, here’s how these 3 assets could react to the US CPI report
USD Index
The past few months have been rough and rocky for the dollar as investors weighed the prospects of the Federal Reserve pausing and then eventually cutting interest rates. More pain could be in store for the dollar if US inflation cools more than expected in April.
A soft inflation print may drag the USD Index toward the 100.72 level. Should prices experience a bearish breakout, this could open the doors toward 100.
A sticky inflation print could throw a lifeline to dollar bulls, propelling back above 101.50 with 102.34 acting as a key level of interest.
SPX500_m
After being trapped within a range for the past few weeks, could a breakout be on the horizon for the SPX500_m?
If the inflation numbers beat expectations, this may trigger a bearish breakout on the SPX500_m – taking prices below the 4050-support level.
Should the inflation numbers come in lower than market forecasts, SPX500_m bulls could be injected with renewed confidence as expectations intensify over the Fed ending its rate cycle. This could send the index back toward the 4180 resistance level and beyond.
Gold
It may be wise to fasten your seatbelts for potential volatility on gold due to its high sensitivity to inflation data and US interest rate expectations. The precious metal remains bullish on the daily charts despite prices pulling back from near-record highs.
A soft inflation report could sweeten appetite for the zero-yielding asset as bets rise over the Fed cutting rates in 2023. This development could push the metal back towards the 2023 high of $2063 with bulls eyeing $2070 and the all-time high at $2075.
A stronger-than-expected inflation number could drag gold prices back toward the psychological $2000 level.