Summary AI overshadowed bitcoin in the first half of the year, with news of spot bitcoin and ether ETFs approval. Global X Blockchain ETF (BKCH) up only 14% in 2024, while spot bitcoin is up 45%. BKCH has grown to $165 million in assets under management, with high concentration in fintech sectors and high risk ratings. I outline key price levels to watch ahead of bearish bitcoin seasonal trends. AI seemed to steal the show from bitcoin during much of the first half of the year. Crypto was in the news in January when the US Securities and Exchange Commission approved 11 spot bitcoin ETFs. Then, just recently, news unfolded that spot ether ETFs were on the horizon, though the approval process is taking a bit longer than some crypto experts expected. But crypto- and blockchain-related stocks continue to be among the more highly traded equities in terms of daily volume. Some critics point out, however, that with the convenience of spot bitcoin ETFs, the shine could come off highly volatile blockchain stocks. To wit, the Global X Blockchain ETF (BKCH) is up just 14% in total return so far in 2024 while spot bitcoin is higher by 45%. I reiterate a hold rating on BKCH. Shares surged into the close of 2023, and my hold rating on December 7 was premature. As speculation grew around spot bitcoin ETFs, BKCH rose big, but has really just churned sideways since mid-February. Today, I see mixed risks, including bearish summer seasonality for bitcoin that could prevent BKCH from gaining much steam in the months to come. Blockchain Stocks Underperforming Bitcoin YTD Stockcharts.com According to the issuer , BKCH seeks to invest in companies positioned to benefit from the increased adoption of blockchain technology, including companies in digital asset mining, blockchain & digital asset transactions, blockchain applications, blockchain & digital asset hardware, and blockchain & digital asset integration, according to Global X. The issuer states that the theme is bigger than just cryptocurrency and that BKCH invests accordingly, with global exposure across multiple sectors and industries. BKCH has grown significantly since I last analyzed the fund. Total assets under management have swelled to $165 million, up from $104 million. With an annual expense ratio of 0.50%, it’s not all that expensive and the ETF yields 2.05% on a trailing 12-month basis. Share-price momentum shows a perfect A+ ETF Grade by Seeking Alpha, but I will make the case later in the article that the technicals are not that sanguine. BKCH is not for the risk-averse. Its risk rating is quite poor given a concentrated allocation and high annualized standard deviation trends. Prospective investors should also be mindful of the ETF’s liquidity situation – average daily volume is less than 50,000 shares and its 30-day median bid/ask spread is high at 0.5%, according to Global X. Looking closer at the current portfolio, BKCH is volatile due to its high weight to the small-cap-growth section of the style box. What’s encouraging, however, is that the fund’s price-to-earnings ratio has dropped a full 10 handles from above 30 in late December to under 20 today. I like that cheaper turn while long-term EPS growth is high (of course, the earnings path will likely be volatile). Still, I was concerned about the P/E last year, so this is a positive development. BKCH: Portfolio Metrics Morningstar BKCH is highly concentrated in just a pair of sectors. The portfolio is ‘fintech’ in nature, with 88% in Financials and 11% in the Information Technology sector. As mentioned before, more than 70% of the fund’s assets are invested in the top 10 securities, which is a key risk to consider. BKCH: Holdings & Dividend Information Seeking Alpha Provoking me to revisit BKCH was this seasonal chart from Jeffrey Hirsch . The famed technician notes that the July through September period has been soft for bitcoin in its history. With 14 years of trading history, this is a material seasonal risk as the world’s most valuable cryptocurrency fails to reach new highs, currently trading in the low $60,000s. Bitcoin: Bearish Seasonal Trends in Q3 Jeffrey Hirsch The Technical Take Up big on the year and with a lower valuation, BKCH’s price chart is encouraging in my view. Notice in the graph below that shares are currently consolidating in a bullish symmetrical triangle. This is considered a continuation pattern, and with the broader trend being higher off the $12 low from late 22, we can even make an upside price outlook. If we take the $30 range height that began in early 2024 and add that on top of a potential breakout point above $58, then that would trigger a bullish upside measured move price objective to $88. Of course, that is still well below BKCH’s all-time high of $165 from late 2021. I see downside support in the $27 to $30 range. We’ve also seen sellers come about in the $56 to $58 zone a few times, so that remains a possible trouble spot for the bulls. Overall, the chart is encouraging with rising momentum in the last few months. BKCH: Bullish Consolidation Amid Falling Volume Stockcharts.com The Bottom Line I like the valuation and the technicals, but with bearish seasonality in the offing, I believe it will pay to be picky on when to enter BKCH. I reiterate a hold rating.
