Blockchain ETFs start 2023 in electric form amid risk-on-pivot

by Arthur · January 19, 2023

Blockchain stocks rise as bitcoin price rises by a third in two months

Blockchain ETFs have dominated returns tables in the early stages of the new year, as the likelihood of a “soft landing” recession prompts a return to risk-on investor allocations.

According to data from justETF, VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) rose 74.2%, Global X Blockchain UCITS ETF (BKCH) jumped 56.1% and Grayscale Future of Finance UCITS ETF (GFOF) rose 45.7% between this year’s swings and 17 January.

Interestingly, these strong returns across the theme continued – albeit with significant dispersion – with WisdomTree Blockchain UCITS ETF (BKCN), ETC Group Digital Assets & Blockchain Equity UCITS ETF (KOIN) and Invesco CoinShares Global Blockchain UCITS ETF (BCHN) delivering a return of 35.5%, respectively 23.1% and 15.4% in the same period.

This strong performance is a turnaround from a challenging 12 months for blockchain stocks in which cryptoassets driving the theme either lost most of their value or capitulated entirely.

Between November 2021 and 2022, for example, bitcoin lost as much as 74% of its value, while the token linked to the world’s third largest crypto exchange, FTX, has lost 97% of its value over the past three months, according to CoinMarketCap data.

Tracking this difficult period for the asset class, long-dated blockchain ETFs such as DAPP, KOIN and BCHN are still down 74.2%, 68.2% and 42.3% over the past twelve months, despite their strong start in 2023.

However, the recent sharp rally could mark a significant turning point for the asset class, with a series of positive updates in broader markets prompting investors to return to more adventurous and thematic exposures.

Last month, the US central bank cut its rate hike to 0.50%, after increasing by 75 basis points – the sharpest single peaks since the turn of the century – at four consecutive meetings through 2022.

Supporting the unwinding of hawkish policies, last week’s US headline consumer price index for December was 6.5%, in line with expectations and the lowest since 2021.

This positive shift is also playing out in Europe, with UK GDP growth turning positive towards the end of 2022, while Goldman Sachs analysts this week revised their eurozone GDP forecast for this year from -0.1% to 0.6% .

Against this backdrop, the “most telegraphed recession fundamentals” that many investment banks published late last year may now seem too bearish for some investors, with even the tech-heavy Nasdaq 100 index up 6.7% since early November. last year.

This positive momentum has now carried over to alternative crypto exposures, with bitcoin up by nearly a third over the same period, driving blockchain stocks higher as investors return to the asset class after months in the dark.

Whether such form can continue depends on the crypto industry not undergoing another scandal of FTX proportions, and how much some negative data – such as large employers cutting jobs and weaker corporate earnings – is priced in by markets and investor sentiment.

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