The Siren Nasdaq NexGen Economy ETF faced a tough year amid a general slump in the blockchain industry in 2022. High interest rates have led growth companies that operate in the sector to struggle, while the collapse of cryptocurrency exchange FTX compounded challenges. However, analysts are looking towards a sector rebound during 2023.
- The blockchain industry has underperformed in a challenging macroeconomic environment.
- Siren Nasdaq NexGen Economy ETF’s largest holdings drag down the fund in 2022.
- Analysts forecast a strong outlook for Marathon Digital Holdings – the fund’s largest holding.
The Siren Nasdaq NexGen Economy ETF [BLCN] offers investors a focus on companies that play a leading role in the development of blockchain technology.
The fund had a relatively underwhelming 2022, with its value dropping off by 42.5% over the last 12 months. However, the outlook within the blockchain space seems to be brightening again, with the fund already rebounding 8.2% since the beginning of the year.
The blockchain industry suffered in 2022 as rising interest rates hampered the growth prospects of many of the companies operating in the space. Alongside this, share prices of cryptocurrency companies tumbled. Following the scandal around leading exchange FTX, digital coins dropped even further in value as investors shifted away from riskier investments.
Nevertheless, in 2022 the Siren Nasdaq NexGen Economy ETF outperformed the Global X Blockchain ETF [BKCH], which also holds companies operating within the sector. The latter fund has fallen 72.2% in the past 12 months, which may be attributable to its high exposure to crypto players Coinbase [COIN] and Riot Platforms [RIOT].
Largest holdings bring down Siren Nasdaq NexGen Economy ETF
Marathon Digital Holdings [MARA] is the largest holding in the Siren Nasdaq NexGen Economy ETF, making up 3.19% of the total fund value as of February 12. The company primarily engages in mining cryptocurrencies and has a relatively small market capitalisation of just under $691.7m as of 13 February.
Marathon’s performance is closely tied to the fluctuating price of the cryptocurrencies it mines, and its share price has tumbled 78% in the last year. A recent rebound in performance, however, has boosted the outlook for Marathon, and the shares have jumped 73.1% since the beginning of the year.
The fund’s second-largest holding, Coinbase, has demonstrated similarly weak performance in the last year. Shares in the company, which are also held in the Global Blockchain ETF, have fallen 70.7% in the last year as falling prices in cryptocurrencies hurt the crypto exchange.
The company has been forced to cut 950 jobs and abandon several riskier projects to ensure it can “weather downturns in the crypto market”, chief executive Brian Armstrong noted when announcing the cuts last month. Despite the headwinds Coinbase has faced in recent months, its share price is currently up 61.3% year-to-date.
Outlook brightens slightly for blockchain
Both the blockchain industry and the Siren Nasdaq NexGen Economy ETF performed well in January, and investors will be hoping the trend continues. With interest rate rises potentially slowing over the next couple of months, the outlook for the high-growth and debt-heavy companies operating within the blockchain field has shown signs of brightening.
The fund’s largest holding, Marathon, has a relatively positive consensus analyst recommendation. Out of nine analysts polled by Refinitiv, one gave the shares a ‘buy’ rating, four believe that they will ‘outperform’ while the remaining four rated shares a ‘hold’. Alongside this, the eight analysts providing 12-month price targets gave an average target of $11.75, a 98.5% upside on Friday’s closing price of $5.92.
Analyst forecasts are more divided over Coinbase shares, the fund’s second-largest holding. Out of the 30 analysts polled by Refinitiv, four gave ‘buy’ ratings, five ‘outperform’, 15 ‘hold’ and the remaining six ‘underperform’.
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