As bitcoin, ether, and other cryptocurrencies gain popularity, investors would be wise to look at the digital asset space. The SEC remains unwilling to approve a spot bitcoin ETF, leaving investors with two options: dive into the wild world of bitcoin futures, or kick the tires on a fund that tracks digital assets, like the VanEck Digital Transformation ETF (DAPP).
Digital asset companies include a variety of business lines that intersect with cryptocurrencies in different ways. These could be companies that focus on payment giveaways like Square, Inc. (SQ), crypto exchanges like Coinbase (COIN), or even digital miners like Canada’s Hut 8 (HUT). DAPP’s holdings include a variety of cutting-edge companies that deal with the infrastructure and services around digital assets.
How Would DAPP Fit Into a Portfolio, and Why Not Just Buy Bitcoin?
DAPP offers exposure to growth, disruption, and innovation. It fits nicely into an alternative sleeve and could also be a core-satellite allocation. A big advantage that DAPP has is that its holdings aren’t yet common benchmark holdings, meaning that it will have low correlation to the broader market. It is worth noting that DAPP tracks the MVIS Global Digital Asset Equity Index, which is relatively new, and correlations likely won’t remain static.
Another advantage that holding DAPP has over just getting physical bitcoin is that DAPP’s investments are in companies that are generating cash flow. For an investor to profit off of bitcoin, the value of the currency needs to go up. The companies in DAPP’s holdings, meanwhile, can grow and adapt with the cryptocurrency landscape. If ether or solano usurps bitcoin on the crypto throne, these companies can adjust. Meanwhile, a collection of bitcoin sitting in cold storage is at the mercy of the spot price.
A good example of this is Marathon Digital Holdings (MARA), which is DAPP’s largest holding at 9.30%. Marathon’s year-over-year revenue is up an astounding 6,091% from the third quarter of 2020. Companies have the ability to create and capitalize on ideas and trends, which is key in an ever-evolving space like digital assets. NFTs are currently objects of curiosity and ridicule, but Coinbase recently announced that they were getting into NFTs, which has even seasoned financial voices like Jim Kramer reconsidering previously dismissive stances.
“Today we can purchase a digital piece of art, music or video which has value in and of itself. However, imagine if we could sell NFT’s to invest into impact projects, offering the opportunity for ongoing financial and non-financial returns, making the NFT a living thing?” said Glen Jordan, the co-founder of Empowa in an interview with Forbes. Digital asset companies can explore this space and potentially see huge returns.
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