More than a dozen crypto-linked ETFs have launched over the past two years, attempting to track everything from the metaverse to Bitcoin miners to various blockchains. However, near-perfect correlations show those attempts at differentiation have largely been futile.
The $572 million Amplify Transformational Data Sharing ETF (ticker BLOK), the largest such fund, has a correlation of 0.9 or greater with 14 of 18 other US-listed crypto-themed ETFs, with a reading of 1 indicating perfect harmony, data compiled by Bloomberg show. The 21-day correlation coefficient between BLOK — which holds blockchain-focused companies, — and the $489 million Roundhill Ball Metaverse ETF (METV), which seeks exposure to the nascent digital world, currently stands at 0.91.
The tight link between the crypto-flavored ETFs exposes a problem for issuers and investors alike: at the moment, trying to target specific aspects of the cryptocurrency universe largely produces a portfolio of extremely similar stocks. The issue is rooted in the fact that with so few public companies involved in digital assets, according to Bloomberg Intelligence, to the point that the holdings of an Bitcoin miners ETF ends up looking very similar to a fund ostensibly tracking firms building out the digital economy.
“There’s only so many public companies with true concentrated exposure to the crypto market that there is only so much you can do with these funds to make them differentiated,” said Bloomberg Intelligence ETF analyst James Seyffart. “It’s likely that as the industry matures and new companies enter, we will see correlations decrease.”
A slew of crypto-adjacent equity funds have set sail in the past few years as US regulators continue to reject physically backed Bitcoin ETF applications. Schwab Asset Management launched the Schwab Crypto Thematic ETF (STCE) last month after BlackRock unveiled the iShares Blockchain and Tech ETF (IBLC) in April.
Part of the reason correlations are so high at the moment is a function of the enormous plunge in crypto, Seyffart said. Bitcoin is more than 70% below November’s all-time high. The drop coincides with a fall in the stock market as decades-high inflation and an aggressive Federal Reserve weigh on risk appetite.
As a result, the top eight worst-performing, non-leveraged equity ETFs are all crypto-linked equity funds — all of which have under $100 million in assets, according to Bloomberg data. That kind of drawdown could prompt ETF issuers to reevaluate their offerings, said VettaFi’s Lara Crigger.
“If it’s going to happen, it’s going to happen now,” Crigger said on Bloomberg Television’s “ETF IQ” program. “We’re right in the middle of the crypto winter, this is the appropriate time for some of those ETFs that may have been struggling to gain assets, maybe their issuers are taking a second look.”Source: