A Cautious View on Blockchain Investing

MarketsETF Trends

This article was originally published on ETFTrends.com.

The evolving digital currency market is fraught with risk. Cryptocurrencies, including bitcoin, are volatile, hard to value, lack regulation and, in some cases, are hard to access for many investors.

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Those are among the reasons some investors are opting to tap blockchain technologies as a way of investing in the digital currency boom. Some individual stocks and exchange traded funds offering investors blockchain exposure. The Amplify Transformational Data Sharing ETF (NYSEARCA: BLOK) and the Reality Shares Nasdaq Blockchain Economy ETF (NASDAQ: BLCN) were the first blockchain ETFs to market, having debuted in mid-January.

However, some market observers believe blockchain also carries investment risks. A blockchain is a decentralized database shared across all users that facilitates the process of recording transactions and tracking assets across a business network. This foundational technology is expected to pave the way for significant disruptions across many industries.

“Cautious on Bitcoin and bullish on the underlying blockchain technology—this is an emerging consensus among policymakers and business leaders,” said BlackRock in a recent note. “Blockchain, a distributed ledger technology, enables secure peer-to-peer transactions. This means no intermediaries, but also no trusted centralized authority. Companies in a wide range of industries, from logistics and pharmaceuticals to financial service, are looking into its disruptive potential. Yet challenges abound. Take the financial industry.”

BLOK utilizes an actively-managed approach to investing in the fast developing world of blockchain-based technology, allowing the fund’s portfolio managers to respond in real-time to valuations, company fundamentals and announcements that may impact the blockchain marketplace.

Since BLCN and BLOK debuted in January, two more rivals have come to market. The First Trust Indxx Innovative Transaction & Process ETF (NASDAQ: LEGR) debuted in late January while as did the Innovation Shares NextGen Protocol ETF (NYSEARCA: KOIN).

“We see cryptocurrencies potentially becoming more widely used in the future as the markets mature. Yet for now we believe they should only be considered by those who can stomach potentially complete losses. Similarly, blockchain needs to overcome significant hurdles to reach its promising future,” according to BlackRock.

“KOIN tracks an index designed to give investors exposure to global stocks that are participating in the growth of blockchain technology, which is being applied across a number of industries.” said Innovation Shares in a statement. “KOIN’s underlying index places stocks in one of four categories based on how they relate to the theme: 1. Cryptocurrency as payment; 2. Mining enablers; 3. Solutions providers; and 4. Adopters.”

For more information on the cryptocurrency, visit our Bitcoin category.

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