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There’s still reason for hope for institutional investors who want more exposure to crypto—even as regulators continuing to clamp down the industry, most recently with the U.S. Securities and Exchange Commission (SEC) suing both Binance and Coinbase within 24 hours and sending prices crashing.
According to Dan Weiskopf and Mike Venuto, portfolio managers at Amplify ETF, the near term growth outlook of companies today is indeed “fuzzy and challenging,” but the good news is that “growth is looking cheaper today than in years past.”
“We believe disruptor companies are on sale for now, and long-term investors who are not looking closely to capture the inevitable transformational change from blockchain and digital assets are simply missing out on the most important paradigm shift in decades,” Weiskopf and Venuto wrote in their latest newsletter.
Weiskopf and Venuto are in charge of the Transformational Data Sharing ETF (BLOK) at Amplify, which made a strategic decision to increase its portfolio’s net exposure to Bitcoin miners to as much as 22%—something that helped BLOK to grow more than 31% year to date.
“What we can’t do is to be too extreme where we miss a rally, I think long term you should be involved,” Weiskopf said in an interview with Decrypt. “Anybody should be involved in the blockchain because it's going to be disruptive across so many different industries. So many different companies, not paying attention to it is a real fundamental mistake.”
Traded on NYSE Arca, BLOK is an exchange-traded fund focused on investing in companies involved in blockchain technology and cryptocurrencies, or, as the fund calls it disruptive sector.
“Our mandate is to be invested in companies that are involved with a very high beta,” Weiskopf told Decrypt. “Call it an asset class, call it a growth area, call it disruption, whatever you want to call it, we have to stay true to that mandate.”
To achieve that goal, BLOK’s holdings include shares of MicroStrategy, Galaxy Digital, Coinbase, and Block, as well as leading Bitcoin mining companies, such as Riot Platform, Marathon Digital, CleanSpark, Hut 8, among others.
Since the start of the year, Riot and Marathon saw their stock skyrocket 190% and 150%, respectively, with other Bitcoin miners in Blok’s portfolio also confidently in the green.
But will this momentum last long? And what about risk management?
“Because we're an active fund, our exposure to the miners can move up and down,” Weiskopf told Decrypt. "We've been as high as 30% and as low as 9.5%—so I would say we were overweight to miners, but we're not fully tilted towards our maximum exposure in the miners.”
Regulators need something to regulate, says Weiskopf
Whereas Bitcoin miners appear to be a winning bet for BLOK, at least based on this year’s performance, another important part of the fund’s portfolio has significant exposure to companies involved in transactional aspects of the blockchain industry, such as Coinbase, PayPal, and Robinhood.
To BLOK portfolio managers this wasn’t fully unexpected, as they warned last month that “even bulls have to be concerned that either the regulatory pressures in the U.S. are suppressing Coinbase’s valuation (smell a discount), or worse – Coinbase’s management will be discouraged from innovating.”
“Coinbase is our core holding. We trimmed it back a bit when the Wells notice came about, and it wasn't a surprise to us,” said Weiskopf.
The funny thing about the transactional side of things, according to him, is that whether they're targeting Galaxy or Coinbase doesn't matter.
“It's not going to be neat, but they need something to regulate. I'm not doubting Coinbase at all, but I don't know what the government is going to do,” said Weiskopf, adding that BLOK will manage risk appropriately, sizing from a business model.