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If Crypto Winter Really Thaws, Consider These ETFs

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2022 was an utterly forgettable year for digital currencies. Bitcoin, the largest by market value in the lot, shed nearly two-thirds of its value, while losses for smaller, more speculative cryptocurrencies were far more severe.

In 2022, a confluence of factors plagued digital currencies. Those include bitcoin’s failure as an inflation-fighting asset, the strong, significantly less risky U.S. dollar, rising interest rates and the collapse of brokerage firm FTX.

Regarding FTX, the company’s misdeeds weren’t a commentary on crypto fundamentals, but there was a contagion-like impact – one that’s still being worked through. Suffice to say, FTX’s demise rattled crypto investors’ already frayed nerves.

As a result, more professional investors such as deVere Group CEO Nigel Green, are calling for bolstered crypto market regulation.

“The leaders assembled in Davos at the World Economic Forum must next week return home to their governments who then need to insist that their financial regulators must stop ‘talking the talk’ and begin to up the ante on regulating the cryptocurrency market,” said Green. “The time for endless platitudes on greater regulatory scrutiny is over. Action is required.”

How the 2023 crypto regulatory environment shapes up remains to be seen, but if the crypto winter truly thaws, the following equity-based ETFs could be worth considering.

Invesco Galaxy Crypto Economy ETF (SATO)

The Invesco Galaxy Crypto Economy ETF (SATO) follows the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts and ETPs Index and is among the most crypto-correlated ETFs on the market today. That is to say, although it’s mostly allocated to equities, SATO’s price action is often heavily affected by that of bitcoin.

That’s the result of a 14.76% weight to the Grayscale Bitcoin Trust BTC (GBTC) – an asset that’s feeling some FTX-related pain. Additionally, SATO features ample exposure to bitcoin miners, so the crypto ETF’s correlation to bitcoin isn’t all that surprising. Fortunately for SATO investors, bitcoin is on a torrid pace to start 2023 and some analysts are bullish on crypto’s long-term applications and growth prospects.

“We believe crypto is probably amongst the few industries that can clock frontier-tech-like growth, in a broadly maturing tech landscape,” noted Bernstein analyst Gautam Chhugani. “Today, crypto touches less than 5% of total internet users with significant headroom for application led adoption.”

VanEck Digital Transformation ETF (DAPP)

The VanEck Digital Transformation ETF (DAPP) is another example of a crypto-correlated, though it features no direct exposure to bitcoin and its allocations to miners are below those of some other funds in the category.

DAPP, which follows the MVIS Global Digital Assets Equity Index, is potential 2023 rebound candidate not only because bitcoin could bounce back, but also due to the fact that some of its 20 holdings have deeper stories beyond crypto price action. Those include Block (SQ), which is the crypto ETF’s second–largest component at a weight of 7.35%.

Cash App owner Block doesn’t necessarily need bitcoin’s price to rise. Rather, increased adoption of the cryptocurrency as a traditional form of payment could propel stock higher, helping DAPP in the process.

Siren Nasdaq NexGen Economy ETF (BLCN)

The Siren Nasdaq NexGen Economy ETF (BLCN), which benchmarks to the NASDAQ Blockchain Economy Index, is one of the forefathers of the crypto ETF arena. In fact, BLCN turns five years old today. That’s practically ancient in crypto ETF terms.

Translation: BLCN has been around for a few different crypto environments. As for 2023 possibilities, there’s a lot of potential with this ETF because not only does it have bitcoin correlations by way of allocations to miners, it has other avenues for possible upside. Those include fintech exposure via PayPal (PYPL), among others.

Additionally, BLCN features decent exposure to Chinese internet stocks – a previously downtrodden asset class that’s showing signs of life.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Todd Shriber

Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.

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