Crypto has had a rough start to the year with cryptocurrencies and crypto equities alike all falling as investors face rising interest rates and shuffle allocations around accordingly. Amplify ETFs’ flagship crypto fund, the Amplify Transformational Data Sharing ETF (BLOK), reviewed its tactical choices as an actively managed fund in the most recent newsletter and highlighted the current potential strength in crypto mining investment, as well as forward-looking estimates for crypto mining this year.
BLOK invests broadly across a spectrum of crypto equities that are associated with the development and use of blockchain technology. While diversification can help hedge against some volatility and loss, when there is a system-wide shock, such as soaring inflation, that causes short-term price changes and volatility, no amount of diversification can defend against loss. Accordingly, BLOK was down 18.05% in January.
When evaluating the securities that the fund is invested in, the portfolio managers made the decision to add to the crypto miners because of a belief in the strength of their operating models. What’s more, they have raised the bar on any new crypto mining additions that might be considered for the fund going forward.
“It is clear at this point that crypto mining operating scale is now essential as measured against the rising difficulty rate,” the authors write. “Unless a mining company has built a proper strategic capital plan that assumes the mining difficulty rate will double in 2022, we will not consider them to be a viable operator.”
This year and the challenging market conditions will likely bring failures for some of the smallest mining companies and those that haven’t built to scale properly, and Amplify expects to see an increase in consolidations. On the flip side, it anticipates that bitcoin will reach new price horizons driven by both increasing institutional investment and supply limitations that are favorable for price increases.
“Blips in the Bitcoin price trend may occur as smaller miners are forced to liquidate some of their Bitcoin positions to meet capital obligations for future build-outs. As a result, we believe that revenue from crypto mining may eclipse the 2021 record of $31 billion and be dominated by North American companies,” the authors write.
For investors who want access to the growing crypto space through an actively managed fund that is able to respond to changing market conditions, the Amplify Transformational Data Sharing ETF (BLOK) can be a great solution.
BLOK currently has over $1 billion in AUM, is actively managed, and invests in companies directly involved in developing and using blockchain technology. BLOK was also the first blockchain ETF approved by the SEC and launched in 2018.
The fund invests in companies partnered with or directly investing in companies utilizing and developing blockchain technologies. However, the fund does not invest directly in blockchain technology or cryptocurrencies.
BLOK spreads its holdings across the size spectrum, investing in all market caps. As of the end of December, top allocations within the blockchain industry included transactional at 38.0%, crypto miners at 23.0%, and venture at 11%. BLOK invests across the blockchain landscape, in miners, exchanges, and developers.
BLOK has an expense ratio of 0.71% and currently has 45 holdings.
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