Can the Global X Blockchain ETF Maintain Momentum?

Blockchain technologies received a boost in August when a US court ruled to allow the creation of a bitcoin ETF, boosting the Global X Blockchain ETF.

• The Global X Blockchain ETF is up 37% over the past six months.
• US court ruling fuels optimism in the blockchain theme.
• Global blockchain market is expected to expand more than tenfold to $1.4trn by 2030.

The Global X Blockchain ETF [BKCH] is up 37.1% in the past six months and 9.3% over the past year. While this is down from its 52-week high in mid-July — when its share price nearly doubled year-on-year — its strong performance suggests continued interest in blockchain technologies as a means to bolstering the accuracy, transparency and security of financial transactions.

The fund's performance in late August may have been fuelled in part by news that a US federal judge ruled in favour of Grayscale Bitcoin Trust [GBTC] in its lawsuit against the Securities and Exchange Commission over its ambitions to shift from a trust to a spot bitcoin ETF. The shares of Coinbase [COIN] — which is BKCH’s largest holding, accounting for 15.0% of the portfolio as of 1 September — rallied on the news, rising nearly 15% following the announcement on 29 August.

The US court ruling was hailed as momentous by crypto enthusiasts and is expected to provide momentum to the wider blockchain theme. The decision was “a great moment for the industry”, according to Paul Grewal, Chief Legal Officer of Coinbase, in a statement after the ruling. “While we still believe comprehensive federal crypto legislation is the best way forwards, decisions like this are an important step towards the clarity the industry needs,” he added.

BlackRock [BLK] has tapped Coinbase to be their spot fund’s surveillance partner in order to reduce vulnerability to market manipulation.

Recent moderation

BKCH invests in companies that are well positioned to leverage the global uptake of such technologies among both government and industry players. As of 31 July, information technology firms accounted for the bulk of the companies on the fund, at 73.3%, followed by financials (24.4%), industrials (1.7%), consumer discretionary (0.4%) and real estate (0.2%).

While the US court decision was a welcome development in the bitcoin space, BKCH’s more moderate performance since mid-July could be attributed to the mixed performances of some of its holdings — including the fund’s second-largest, bitcoin miner Marathon Digital [MARA], comprising 12.3% of its portfolio.

Marathon’s stock is down 24.2% over the last month, after the company reported a net loss of $21.3m for the second quarter (Q2) — notwithstanding the fact that this was a significant improvement over the net loss of $212.6m for the same period in 2022.

Q2 revenue, however, weighed in at $81.8m, well above $24.9m in the equivalent period of 2022, an improvement attributed to a 314% rise in bitcoin production offsetting bitcoin prices. With an eye on future opportunities, Marathon is looking to the “very important intersection” of blockchain technologies and artificial intelligence (AI) as it diversifies and expands its operations, Fred Thiel, CEO of Marathon, said in an interview with Decrypt. “We believe that over time you are going to see that blockchain technologies and AI have a very tight coupling.”

Outlook for the Global X ETF

While the blockchain space is still facing regulatory uncertainty following last year’s sudden collapse of crypto leaders like FTX and BlockFi, blockchain is still “quietly empowering new business solutions with more trust and resilience than traditional database structures can offer”, according to a December report from Grant Thorton. More specifically, the consultancy expects opportunities in data storage, smart contracts, decentralised apps and asset tokenisation, independent of bitcoin’s trading price.

The rapid digitalisation kicked off by the Covid-19 pandemic is expected to continue, fuelling demand for blockchain technologies from companies across the economy. Grand View Research valued the international blockchain market at $10bn in 2022, and anticipated it will expand more than tenfold to reach more than $1.4trn by 2030. Investing in a themed ETF such as BKCH offers investors exposure to a range of companies in the space.

A survey of 51 Wall Street analysts polled by TipRanks gleaned a consensus 12-month share price target of $147.48 for the ETF, representing an 449.7% increase from its most recent closing price of $26.83.