Written by Norman Isaac Mwambazi

Here is how to safely invest in bitcoin and blockchain technology

Although bitcoin has made some people millionaires, especially those that invested in it in its early days, it remains one …

Although bitcoin has made some people millionaires, especially those that invested in it in its early days, it remains one of the most feared forms of investment, especially for traditional investors. However, this digital asset, which is the largest in the world among its peers with a market capitalisation of $866.67 billion is steadily entering the mainstream financial market, with large companies either buying it or allowing people to use it to pay for goods and services on their platform.

Even with these positive moves, millions of people are still sceptical about bitcoin and the whole blockchain technology, mostly due to the fact that it is digital – no one can physically touch it, they only see numbers on the screens of their devices, but also because of its high volatility.

In case you are scared of investing directly in bitcoin for fear of losing your money, there is a safer way to do that, and it’s none other than investing in Exchange Traded Funds (ETFs) that are focused on cryptocurrencies and companies that mine, as well as those that develop blockchain technology.

The Amplify Transformational Data Sharing ETF (ticker: BLOK) is the largest ETF focused on cryptocurrencies, as it invests at least 80% of its net assets in companies that are actively involved in the development and utilization of blockchain technologies. This actively managed ETF has $1.3 billion in assets.

Another ETF in the cryptocurrency space is the Siren Nasdaq NexGen Economy ETF (ticker: BLCN). Unlike BLOK, BLCN is passively managed, and it has $291 million in assets. BLOK and BLCN were established on January 17, 2018.

Risks and rewards of investing in digital assets

Putting aside their high volatility, there is also a risk of losing all your assets in the unfortunate event that you lose the password to your digital wallet. Bitcoin can be stored in digital wallets online, or on physical hardware, both of which should be kept privately and securely. One of the popular incidences where someone lost a huge amount of bitcoin was one where Stefan Thomas from San Francisco misplaced the password to his 7,002 Bitcoin in 2012. Between then and now, this bitcoin is now worth $327 million.

Another risk involved in investing in digital assets is that they could be stolen. There have been several reports of hackers infiltrating crypto trading and exchange platforms and steal cryptocurrency worth millions of dollars. Exchanges like Coinbase Global Inc. (ticker: COIN) is one of the companies that have faced this. What’s worse is that most customers are unable to recover their bitcoin once lost. You also have other issues like poor customer care, and trading becoming unreliable in times when there is high volatility. Even with these reports, Coinbase still maintains a “Buy” rating from 16 analysts out of 24 that were surveyed by FactSet.

Blockchain ETFs

The graph below shows how blockchain ETFs BLOK and BLCN have performed since their establishment in 2018, against the price of bitcoin in the same period.

Here is how to safely invest in bitcoin and blockchain technology
Source: FactSet

From the graph above, it is evident that Bitcoin has performed the best soaring 322%, followed by BLOK which rose 159%, and then BLCN wrapped it up with a return of 104%. It is also clear that bitcoin has been more volatile since Jan 2018 than these two ETFs.

The chart below further shows how volatile bitcoin has been, gauging by the performance of BLOK and BLCN in the first two years of their establishment.

Here is how to safely invest in bitcoin and blockchain technology
Source: FactSet

The chart above illustrates the volatility of bitcoin. The cryptocurrency was down 71% through December 14, 2018, and it averaged lows of 18% for the entire two years. In the same period, BLOK and BLCN were up 1% and 14% respectively, further cementing the fact that the two ETFs have been less volatile. As much as the chart emphasizes bitcoin’s plummet throughout 2018, it also shows that BLCN performed better than BLOK during that two-year period.

The table below shows the total return comparisons for BLOK, BLCN, Bitcoin and as well as the SPDR S&P 500 ETF Trust and the Invesco QQQ Trust for reference.

Fund or indexTotal return – 2021 through Sept. 8Total return 1 yearTotal return – 2 yearsTotal return – 3 yearsTotal return – Jan. 17, 2018, through Sept. 8, 2021
Amplify Transformational Data Sharing ETF BLOK, +0.83%170%113%177%164%159%
Siren ETF Trust Siren Nasdaq NexGen Economy ETF BLCN, +0.13%88%44%106%113%104%
Bitcoin (CME) Continuous58%365%345%628%322%
SPDR S&P 500 ETF Trust44%37%57%66%72%
Invesco QQQ Trust81%42%101%115%136%
Source: FactSet

Out of five ratings from financial services firm Morningstar, Inc., BLOK has a four-star rating while BLCN is rated three stars. Blok’s four-star rating is backed by the fact that it has more than doubled the return of the SPDR S&P 500 ETF Trust, and it has outperformed the Invesco QQQ Trust since its establishment in 2018.

As seen by that market data that bitcoin spend the two years from 2018 in lows of 18% but the ETFs that provide exposure to it and other blockchain technology posted positives, it may be a wise and safe idea to invest in these assets as they provide your investment with a hedge when bitcoin is struggling. By doing this, you’re still exposed to bitcoin and blockchain technology, but you have a risk-tolerant investment.

ETF portfolios

As mentioned earlier, these ETFs invest the majority of their net assets in companies that are actively involved in cryptocurrency trading, exchange, mining, and blockchain software. Below are the top 10 stocks in BLOK’s portfolio.

CompanyShare of portfolioMarket cap ($mil, U.S.)Total return – 2021
Hut 8 Mining Corp. HUT.WTA, +1.44%6.9%$1,466272%
MicroStrategy Inc. Class A MSTR, +0.31%5.5%$4,97164%
Marathon Digital Holdings Inc. MARA, +4.29%4.5%$3,715257%
PayPal Holdings Inc. PYPL, +0.58%4.5%$335,15422%
Square Inc. Class A SQ, -1.25%4.4%$101,22517.%
Hive Blockchain Technologies Ltd. HIVE, -0.98%3.9%$1,17272%
Galaxy Digital Holdings Ltd. GLXY, +0.19%3.9%$2,037145%
Nvidia Corp. NVDA, -0.73%3.8%$556,68871%
Coinbase Global Inc. Class A COIN, -0.69%3.6%$38,980N/A
Bitfarms Ltd. BITF, -0.13%3.6%$993201%
Source: FactSet

Online payment service providers PayPal Holdings Inc. (ticker: PYPL) and Square Inc. (ticker: SQ) are included here because but both provide services allowing customers to buy and sell bitcoin on their platform. Although BLOK’s portfolio is diversified to lower its risk, its performance is still closely correlated with bitcoin, according to its Chief Executive Officer (CEO) Christian Magoon.

BLCN portfolio

Here are the 10 largest stocks in BCLN’s portfolio.

CompanyShare of portfolioMarket cap ($mil, U.S.)Total return – 2021
Huobi Technology Holdings Ltd. 1611, -0.47%2.7%$509108%
Coinbase Global Inc. Class A COIN, -0.69%2.4%$38,980N/A
Accenture PLC Class A ACN, +0.23%2.1%$215,80932%
Square Inc. Class A SQ, -1.25%2.1%$101,22517%
Advanced Micro Devices Inc. AMD, -0.02%2.0%$128,78116%
Fujitsu Ltd. 6702, +3.53%1.9%$39,97144%
Nvidia Corp. NVDA, -0.73%1.9%$556,68871%
Z Holdings Corp. 4689, -0.59%1.9%$50,55218%
Marathon Digital Holdings Inc. MARA, +4.29%1.9%$3,715N/A
Nasdaq Inc. NDAQ, +0.03%1.9%$33,17850%
Source: FactSet.

By press time, bitcoin is selling at $45,235.90.