Investing Smart: Exploring the Depth of iShares Blockchain Technology
iShares Blockchain Technology has been one of the most popular technological advancements over the last few years. As the underlying technology behind revolutionized digital currencies such as Bitcoin and Ethereum, blockchain is acting as the driver for novelty trends across finance, business, government, among others. So for investors blockchain and all of those cryptocurrencies are really a growth opportunity with a very high level of uncertainty.
let’s take a closer look at a less complicated approach for investors to get introduced to an actual application of blockchain – an ETF known as the iShares Blockchain & Tech ETF (IBLC). We’ll explore its holdings what this ETF invests in next its approach and performance history, who might want to use this, and what the downsides are.
What is actually the iShares Blockchain and Tech ETF (IBLC)?
iShares Blockchain & Tech ETF from BlackRock’s iShares division is an ETF that tracks an index and was opened in April 2019. Despite having a relatively narrow investment specialization, as stated in its name, the fund invests only in equities of enterprises operating in such sectors as research, investment, development, operation, and utilization of blockchain and similar technologies.
This includes companies in the following business segments:
- Sellers of blockchain equipment /: hardware and software suppliers.
- Cryptocurrency miners.
- Cryptocurrency exchange are indeed refer to as Crypto trading business.
- Other tech firms that are exploring blockchaintechnology include
As is the case with most index based ETFs, the stated objective of IBLC seeks to offer investment return consistent with the index it contains – the NYSE FactSet Global Blockchain Technologies Index in this case. This index is based on a sample of international securities which are listed in the public markets and satisfy the above-discussed blockchain linkages and the global equity stocks are subjected to filter out based on their market capitalization and tradability.
This is a more diverse means to venture into the blockchain through the ETF than through tokens of specific cryptocurrencies. The companies it holds are usually older and more stable players into the technology space using blockchain against other new-aged altcoin projects which are perceived to be more risky.
IBLC’s Investment Portfolio & Investment Polices
Before the year 2000, IBLC had invested in 48 stocks in its portfolio as of January 2023. Its investments are tech, software, financial services, digital asset mining, semiconductors & IT consulting companies in the Americas, Asia & Europe.
Some of IBLC’s top 10 holdings include:
- Silvergate Capital Corp – A US bank dealing in cryptocurrency related firms (Weight 5.41%)
- VYA – A virtual base for largest professional financial services firm (5.04%)
- Hive Blockchain Technologies – is a Toronto-headquartered crypto mining company (4.98%)ilers and brokers.
- Coinbase Global Inc. America’s favorite cryptocurrency exchange (4.96%)
- MicroStrategy Inc. The enterprise analytics firm that heavily invested in bitcoins (4.83%)
IBLC is an exchange-traded fund that funds aim to provide returns and the overall performance in line with its index. The index ruling committee determines regex and adjusts the constituents quarterly to include new blockchain stock prices and filter out companies that have failed to meet the eligibility standards. IBLC redirects proportional to index shifts.
IBLC’s Performance
The fact is that IBLC is an ETF from a relatively specific sector and was launched recently in 2019, so it lacks a long-history performance. It also seems to be in a direct proportion with the ups and downs that characterise the general crypto market cycle.
For instance, the investment in IBLC rose to 12% in Q1 while it rose by 150% to the end of 2021 as the crypto markets boomed. When crypto subsequently tanked in 2022, IBLC was cut by over 70%.
IBLC is currently at $7 per share, which is quite lower compared to the price above $25 it touched in 2021. It gives remarkably high risk-adjusted return since its creation and has averaged at -8% annually but could easily bounce back should cryptocurrencies gain the upward momentum.
Another interesting figure is an annual expense ratio – 0.50%, which is quite reasonable for niche ETFs.
Key Takeaways
- Unprecedented high risk/reward that is directly tied to the volatility of crypto currencies .
- Grossed 150% in 2021’s bull run; slumped more than 70% in the following 2022 bear market.
- No cash dividend distribution; strictly capital gains stock.
- It is okay for there to be an expense ratio of 0.50% in a niche sector fund.
For Which Investors Might Be This Fund Interesting?
An ETF like IBLC could be appealing for:
IF there are persons who would like to invest into equities / stocks that have a spi connection to the blockchain / crypto industry in their investment portfolio then Investors who want to invest in coins that are somewhat different and require less intervention than direct purchase of coins. Those who are interested but have not invested previously in the particular space. People already invested in digital currency to diversify their exposure to the kind of equities already publicly traded.
There appears to be a bit more in common between IBLC and long-term investors with a high-risk tolerance – or, more specifically, one that serves IBLC better than does XF or AGB, the risk tolerance of an investor willing to bet on an aggressive growth strategy. More importantly, it should be viewed as something different from standard Vanguard index tracking funds, and regular ‘blue chip’ stocks.
Suitability Points for the Clients
- Ideal for investors ready to take risks while seeking to invest in blockchain technology
- Investment time horizon, long term should always be embraced
- Restriction to small portion due to volatility risk
- Complement rather than the core LTIP holding
Risks and Considerations
IBLC poses considerably higher risk than traditional ETFs. Its tightly defined blockchain coverage and connection with the crypto market cycles can generate extremely increased noise for investors to endure.
Some particular risks to consider:
Emerging Technology and Field Risk – Blockchain is a relatively unproven, new technology and way of conducting business. Calamitous adoption experiences or problems in segments such as cryptocurrencies and NFTs could expose fund holdings.
High Volatility Risk – Fluctuations in the price volatility in Bitcoin/ other cryptocurrencies would result in high volatility gains and losses for this ETF. Recording entries and exits at the right time is always very hard.
Speculative Stock Risk– Majority of stocks are micro and small-cap stocks engaged in a speculative niche. Losses or erosion within single name credits have an impact on fund results.
Crypto Correlation Risk – The nature of returns at IBLC is highly correlated with the crypto market cycle. The ETF can sometimes remain in red for enormous amounts of time due to investing in a bear market, or as a result of exchange failures or hacks.
As for the higher long-term return potential offered, what the investors should expect are higher volatility oscillations and here comes the stomach, to bear the volatility downside as well. One way to mitigate such volatilities is to keep positions small and dollar-cost averaging on position accumulate will also lessen its impact.
Conclusion:
Many investors may look at blockchain and cryptocurrency sectors to establish an investment in technology for the future while the IBLC offers the passive, low-cost investment through an index fund strategy.
And, unlike investing directly in specific holdings, IBLC offers a basket solution against single segment focused on publicly-traded leading blockchain stocks where it can track an underlying index of miners, software and financial services. The following is a list of the highest allocations to dated as of the first half of calendar year 2023, namely, Silvergate Capital Corp., Galaxy Digital, Hive Blockchain Technologies Inc. and Coinbase.
Since its inception during October 2019 IBLC prices have fluctuated sharply typically in parallel with such gains or declines across digital asset markets. Due to its focused risk and speculation it is best used as a satellite holding for the aggressive investor, but not for the core and hold position.
As with many other blockchain and crypto ventures, higher return potential abounds in the long-term, although investors should prepare themselves for volatility and risks of drawdowns through investments such as IBLC. Some of the volatility challenges over the market cycles can be overcome through the right management of portfolio, rebalancing, and slow building of positions.