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Patience Required with Crypto ETFs, But It Could Be Rewarded

The collapse of crypto brokerage firm FTX and the collateral damage caused by that event, some of it ongoing, is an obvious negative pressure point on bitcoin and the broader cryptocurrency space in recent weeks. However, some market observers maintain the view that the demise of FTX is a commentary on bad actors, not on the broad cryptocurrency universe. They also believe the current “crypto winter” could fade next year, potentially providing ballast to exchange traded funds such as the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).

BLKC, which follows the Alerian Galaxy Global Blockchain Equity, Trusts, and ETPs Index, provides equity-based exposure to a variety of crypto segments, including miners, brokers, and blockchain companies, among others. While not the ideal exposures for the current environment, BLKC could be well-positioned to benefit if central banks lay off tighter monetary policy next year.

“We saw this (last) week how Bitcoin and crypto are going to react when major central banks take their foot off the economic brakes and slow down their interest rate hike agenda as inflation peaks,” said deVere Group CEO Nigel Green in a recent note. “Bitcoin jumped around 1% on Wednesday after minutes from the Federal Reserve’s November meeting indicated that the majority of U.S. central bank officials want a slower pace of rate hikes going forward.”

While inflation remains high in the U.S. and some other developed markets, the Federal Reserve and major central banks may not have the luxury of ongoing aggressive interest rate increases, because those moves risk economic hard landings. By some accounts, the U.S. economy is already in a recession or will enter one next year.

For investors waiting on a crypto rebound fueled by central banks, patience could be required. As Green points out, it could be the middle of 2023 before the Fed and other central banks earnestly commence unwinding the monetary hawkishness displayed this year.

“We expect as the program unwinds, which is likely to be in the second quarter of 2023, these will be the assets that will experience some of the biggest rallies,” he added. “Although, the high-octane rush of previous rallies is unlikely, instead we will see a steadier, continued upward trajectory for Bitcoin when the unwind kicks off.”

For now, patient, risk-tolerant investors may want to evaluate BLKC because many of the ETF’s 59 holdings are deeply discounted — and that’s saying something, because about 37% of the fund’s components are classified as growth stocks.

For more news, information, and analysis, visit the Crypto Channel.

vettafi.com is owned by VettaFi, which also owns the index provider for BLKC. VettaFi is not the sponsor of BLKC, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.



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