This week, ProShares filed for a crypto and blockchain ETF with the SEC. It joins more than a dozen filings for crypto and digital asset ETFs sitting before the SEC, and is one of a handful that seek to invest in the blockchain technology, as opposed to directly holding cryptocurrencies such as Bitcoin or ethereum.
The ProShares S&P Kensho Global Crypto and Blockchain ETF would track the S&P Kensho Global Crypto and Blockchain Index, an index that is focused on the technologies that form the blockchain and digital currency value chain, per the prospectus.
The index tracks companies both inside and outside of the U.S., as well as companies in developed and emerging markets that either create blockchain technology products and services or else enable digital currencies, including miners.
To select companies, the indexers evaluate whether a company’s primary purpose is either blockchain products or services or digital currency products and services. If so, the company is labeled a “core” holding; all others are labeled as “non-core”.
The holdings within each of the two categories are all weighted equally, but core securities are overweighted compared to non-core. These weights can also be adjusted further to compensate for liquidity requirements.
The Index is currently concentrated in the software and services industry group, with a concentration in the U.S. but a focus on China and Canada. As such, the fund will invest in equity securities, or common stock, as well as American Depository Receipts that allow access to securities in other countries.
Investing in “Crypto-Lite” ETFs
In an interview with Blockworks, managing editor of ETF Trends and ETF Database Lara Crigger described these blockchain ETFs as “crypto-lite.”
In avoiding directly investing in a physical cryptocurrency such as Bitcoin, this type of ETF would have a better chance of clearing review by the SEC and actually making it to market.
Investing in funds that hold shares of companies that are developing the blockchain technologies and mining cryptocurrencies are a much less volatile way to gain exposure to the digital asset space than investing directly in cryptocurrency, she explained.
“That said, the more indirect your exposure to the crypto market, the less you’re actually going to be capitalizing on the trend precisely,” Crigger told Blockworks. “Blockchain is a technology shift that has other uses and applications well beyond cryptocurrency, making a blockchain ETF more of a disruptive tech play than a cryptocurrency proxy.”
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