The largest blockchain ETF, Amplify Investments’ Transformational Data Sharing ETF (BLOK), has recently increased its positions in bitcoin miners after reaching an all-time low allocation at the end of 2022. The fund now allocates roughly 21% to bitcoin mining companies, up from less than 10% previously. This move reflects optimism around the price action of bitcoin amidst an oversold market.
However, the increased allocation to mining companies also comes with concerns about market transparency, regulation, and environmental impact. For example, BLOK managers are watching how regulatory questions could impact Coinbase and other companies, such as Overstock and Nubank.
The fund’s top holding in the mining space is Riot Platforms, accounting for 4.84% of its assets. Riot’s stock price has surged 258% so far this year, highlighting the potential rewards of such investments. However, the environmental impact of bitcoin mining has raised questions about the long-term sustainability of such companies.
Apart from the mining sector, BLOK is also invested in MicroStrategy, the largest publicly-traded holder of bitcoin, as a proxy for the cryptocurrency. While the stock has performed well in 2023, with gains of 109% year-to-date, it remains to be seen if it will continue to outperform other popular ETFs in the crypto space.
Furthermore, the potential for future regulation and the ongoing debate about the environmental impact of bitcoin mining could hamper performance and affect asset allocation in these crypto-related ETFs. While BLOK managers believe that diversification over time has its benefits, others argue that a more concentrated portfolio can offer better returns in the short term.
Despite its recent allocation changes and optimism around bitcoin, BLOK has underperformed several other crypto-related ETFs so far in 2023. Valkyrie’s Bitcoin Miners ETF (WGMI) has posted year-to-date returns of about 147%, while the VanEck Digital Transformation ETF (DAPP) and the Bitwise Crypto Industry Innovators ETF (BITQ) have garnered returns of 118% and 108%, respectively.
In contrast, BLOK has returned 33.3% year-to-date, indicating that a more diversified approach might not always result in the highest gains for investors. However, with the ever-evolving landscape of blockchain technology and the ongoing debates around regulation and sustainability, investors may find that a diversified portfolio offers a more stable and manageable risk profile in the long run.