Summary Global X Blockchain ETF is a volatile, non-diversified exchange-traded fund. The Fund's large exposure to crypto miners is a risk if the upcoming Bitcoin halving event causes a decline in miner profits. The expense ratio of the Fund is higher than several other available passive ETF options in the blockchain equities space. Introduction With an inception date of July 12, 2021, the Global X Blockchain ETF ( BKCH ) (hereafter, the " Fund ") did not have an auspicious beginning. The crypto bear market that started in earnest in the fall of 2021 and continued for 18+ months thereafter weighed heavily on the performance of this exchange-traded fund (" ETF "). In fact, the Fund's timing proved to be so unfavorable that in its first full year of performance (2022), the Fund lost more than 85% . A loss that large requires a 567% gain in order to break even, and the Fund still has a long way to go in order to achieve that. Of course, the long arc of history may show the bear market performance of 2022 to be an anomaly. Sure enough, things started to turn around in 2023 and the Fund had gains in excess of 265%. Notwithstanding these huge gains in 2023, the Fund is still down more than 50% since its inception, according to the Fund's website . Needless to say, in its short history, this is a volatile Fund that is not for everyone. At the current juncture in early 2024, I believe the Fund to be a hold. The blockchain equities space is still new, and it is hard to discern which strategies will win out over the longer term, if any . As I describe below, the Fund does not have cost advantages relative to its competitors. Moreover, the Fund has not fared as well as the other passive blockchain equity options with two full calendar years of performance under its belt. The Fund does stand out for two reasons, however. First, it is not diversified (and less diversified than even other non-diversified ETFs in the crypto space). Second, the lack of diversity has resulted in the Fund having a lot of exposure to the crypto miners. In each case, the things that make the Fund stand out also add risk on top of what is already a risky, speculative, and volatile industry. Overall, while I am mildly bullish on Bitcoin ( BTC-USD ) (" Bitcoin " or " BTC ") and crypto for the next few months, the dramatic rise in this Fund in 2023 has me cautious on its prospects, particularly with the Bitcoin halving event almost here, which event could make it more difficult for the crypto miners to profit absent a large rise in the Bitcoin price . Moreover, even if the Fund were to have a meaningful pullback here in 2024, I am not sure this Fund would be my "go-to" option to gain exposure to blockchain technology stocks. In this regard, and in full disclosure, I currently own shares in the following blockchain ETFs (symbols only provided): BLOK, BDCF, BITO, MAXI, EZBC, BITB, and EETH. I also own shares of Argo Blockchain ( ARBK ) bonds, which trade under the symbol ( ARBKL ) and have been discussed by me in a prior Seeking Alpha article . Fund Basics According to its website, the Fund's investment results will generally be linked to the performance, before fees and expenses, of the Solactive Blockchain Index (the " Index "). It invests at least 80% of its total assets in the Index, the Index having been designed to provide exposure to companies that are positioned to benefit from advances in blockchain technology. As noted earlier, the fund is non-diversified. Per the website , the Fund markets itself as having high growth potential due to anticipated growth in the blockchain space, particularly "as government and industry seek to improve the accuracy, transparency, and security of financial transactions." The Fund also markets itself as having an "unconstrained approach," which simply means that it is supposed to provide global exposure across multiple sectors and industries. As noted herein, however, the Fund is heavily tilted toward the crypto miners. The Fund's assets under management are currently approaching $150 million, according to the Seeking Alpha quote page . Global X ETFs, the Fund's sponsor, is a member of Mirae Asset Financial Group, a global enterprise based in Seoul, South Korea that offers asset management expertise worldwide. Expense Ratio and Competition The expense ratio for the Fund is 0.50%. This is among the higher expense ratios in the space for a passive product, while lower than active managers like the Amplify Transformational Data Sharing ETF ( BLOK ), which by comparison charges 0.71%. The other passive competitors include the Fidelity Crypto Industry and Digital Payments ETF ( FDIG ) at 0.39%; BlackRock's passive offering, iShares Blockchain and Tech ETF ( IBLC ), at 0.47%; and VanEck's passive offering, VanEck Digital Transformation ETF ( DAPP ), at 0.51%. Meanwhile, the management fee for a newcomer, the Schwab Crypto Thematic ETF ( STCE ), comes in at a very low and competitive 0.30%. Because the space is so new, there are very few funds that have been around for at least two full calendar years. Below I compare the Fund to two other Funds, one passive and one active, which have such an operating history. The Fund DAPP BLOK Management Fee 0.50% 0.51% 0.75% 2022 Performance (85.10) (85.60) (62.36) 2023 Performance 267.36 285.0% 99.53% Asset Under Management ($ millions) 149.2 95.8 963.2 Top 10 Holdings % 81.44% 65.21% 41.56% Overall, with respect to performance, the Fund is extremely volatile, but so is the performance of its competitors, with actively managed and more diversified BLOK providing both less downside and upside risk, and with DAPP providing more performance upside with about the same downside risk as the Fund. Of course, two years of performance data is probably not enough time to make material comparisons. Holdings As of February 21, 2024, the Fund's top seven holdings are as follows (such holdings making up more than 70% of the Fund's portfolio): CleanSpark, Inc. ( CLSK ) 17.35% Marathon Digital ( MARA ) 16.45% Coinbase Global ( COIN ) 14.25% Riot Platforms ( RIOT ) 9.83% Bitfarms Ltd. ( BITF ) 6.67% Iris Energy ( IREN ) 4.45% Galaxy Digital Holdings ( GLXY:CA ) 3.74% Since the Bitcoin miners make up more than 50% of the Fund, one has to consider whether an investor should simply utilize the Valkyrie Bitcoin Miners ETF ( WGMI ), which ETF was up more than 300% in 2023. That said, I personally do not mind the large miner exposure of the Fund; indeed, back in July 2022 during the crypto bear market, I wrote that: When the tide turns and crypto winter ends, I have been giving a lot of thought as to how I want to add portfolio exposure. In this discernment process, I have determined that the best way [FOR ME] to do so will be via the crypto miners. I am done with wallets (it's an age thing, being in my 50s), I am done with the exorbitant fees of Coinbase ( COIN ), the regulatory issues of BlockFi, the bankruptcy of Voyager, and so on and so forth with respect to the centralized crypto exchanges. The miners, on the other hand, are leveraged to crypto, Bitcoin in particular, and I can trade them via my brokerage account without any fees and without administrative and tax headaches.... I'll be looking for more concentrated exposure to the miners when my general view on crypto turns bullish." Of course, while (with hindsight) I had the best of intentions and the right thought process, I did not execute accordingly (i.e., didn't own a material amount of the crypto miners) and missed out on some great, 250%+, gains. From here, I suspect the easy gains have been made, and I am not inclined to build a position in the Fund absent a large pullback. Risks The Fund's Prospectus outlines the risks of holding shares in the Fund. As alluded above, I believe the Bitcoin halving occurring later this year will be a big event, particularly for the miners of which the Fund is heavily exposed. Per the halving, Bitcoin's mining rewards will decrease from 6.25 BTC to 3.125 BTC, which change could result in a lower hash rate, making it difficult for miners (particularly the less efficient ones) to cover their operating costs. A reduction in miner profits will harm the Fund. Another key risk I think is government interference in the industry. It does not go unnoticed that the 2023 IRS 1040 Tax Form includes a Digital Assets query right up front at the top of the application. No one wants to be audited, but it seems abundantly clear that the federal government is putting in place the infrastructure to target crypto investors for audits. Investors should not underestimate the fact that many politicians detest crypto, see it as a destabilizing force and believe it can destabilize the dollar . Anti-crypto policies and practices could adversely affect the Fund. Conclusion I believe the Fund is a hold . I would like a little more diversification, a lower management fee, and a pullback in its price in order to get interested. Of course, if Bitcoin continues to rise, I would expect the Fund to do just fine; for now, however, I think there are better ETF options in the space to utilize.
