Summary BLOK has appreciated only 0.05% since inception while also significantly trailing BTC and the major market indices. BLOK's holdings are concentrated within companies with cryptocurrency exposure in particular; its top holding owns BTC outright and its top 5 are all involved in cryptocurrency. It has been tightly correlated to BTC throughout its lifecycle while getting nowhere near the return. Considering this along with its relatively high expense ratio and subpar ETF metrics, it's a sell in my book. Overview The Amplify Transformational Data Sharing ETF (BLOK), commonly referred to as "the blockchain ETF," is exactly as it sounds. This ETF was established in Q1 2018 in order to invest in businesses that are leveraging blockchain technology as a core part of their businesses. Since its inception BLOK’s price has thus far ended up at par, with an appreciation of only 0.05% overall; it also significantly underperformed both the NASDAQ and S&P. While this ETF did trade above both of these indices throughout most of 2021, this price behavior reversed itself and the ETF is now trading significantly below either of these. Seeking Alpha It would be sensible to believe that this ETF is closely correlated with the performance of Bitcoin (BTC-USD), and this turns out to be the case. The BLOK ETF tracked the price performance of Bitcoin to a tee until the end of 2020 – at which point it began to significantly underperform it. As it stands today, Bitcoin has appreciated 201.6% since the inception of BLOK while the ETF has only returned .05%. Seeking Alpha The correlation between BTC and BLOK also became tighter (0.9 +) at the time that the price performance between the two began to diverge, and it has held to that level since . A correlation of 0.9 and above really indicates a very close synchrony between the price movements of two assets, and that’s what you’re getting here. The technicals here indicate that this ETF presently constitutes low-beta exposure to BTC. For 2023, the beta is 0.45; this ETF has moved 4.54% for every 10% move in BTC while also retaining a very high correlation. As with any low-beta exposure, this should have the effect of limiting upside as well as downside. However, I don’t think this ETF really holds up in that regard - it isn’t really low-beta exposure to BTC. I can confidently assert this because of its miserly price performance since inception. If this ETF had matched the 0.45 beta against BTC that we’ve seen so far in 2023, then the ETF would have appreciated 90.72% inception-to-date. Instead, it gained 0.05%. On this basis, this ETF is something different entirely; it is exposure to a basket of stocks, each of which is leveraging blockchain in some capacity or another. Holdings Review The mandate underlying this ETF is for it to have exposure to stocks that are leveraging blockchain for their businesses. This exposure, however, comes in many different forms. The utility of blockchain – and thus the fundamental exposure to it – differs significantly across the totality of BLOK’s holdings. Looking at BLOK's top 5 holdings I see: A data company that buys Bitcoin and holds on to it while also building a payments layer for BTC (MicroStrategy ( MSTR )) A Bitcoin miner (Riot Platforms ( RIOT )) A Japanese internet conglomerate that mines Bitcoin (GMO Internet Group) A cryptocurrency market maker and derivatives structurer (Galaxy Digital Holdings Limited) And a crypto brokerage (Coinbase ( COIN )) Off the bat it is clear the crypto is the primary use case for businesses held by this ETF; each of the top 5 holdings are focused on having exposure to cryptocurrency as opposed to another blockchain use case. These top 5 also represent a material proportion of this ETF’s portfolio at 24.96% overall. Since these are the largest holdings we can also infer that they are the highest priority bets for the managers of the ETF. Exposure This concentration in cryptocurrency makes me skeptical that this ETF constitutes quality exposure for the astute investor. We must recall that this ETF has failed to even come close to matching the price return to BTC throughout its lifecycle; this remains true YTD. This has also occurred while the ETF has maintained a very high (0.9+) correlation to BTC. That’s not a winning combination in my opinion; if at least 25% of its exposure is to cryptocurrency, it should at least have generated 25% of the return on the most popular cryptocurrency (Bitcoin) – but it hasn’t. Additionally, we must also consider the relatively significant 0.75% expense ratio for this ETF as well as its risk metrics, which appear to be poor across the board. We see that BLOK has a beta more than double to the average ETF, indicating a high correlation between its holdings as well as a high beta to the market overall. This is a significant kind of risk as the ETF tends to fall far into the red, creating severe drawdowns. Additionally, it has posted a severe tracking error that seems to be getting higher – 49.67% over the past year alone. This means it is basically fluctuating 50% more than its underlying holdings. Finally we can see that there is a decent amount of short interest outstanding for this ETF, as well. Seeking Alpha Conclusion Considering all of this, I just don’t think this ETF makes much sense. It is concentrated in cryptocurrency – its number one holding simply owns Bitcoin outright – and all the while it isn’t able to generate even a fraction of the returns of BTC. All of this while being extremely correlated with BTC. With the expenses one has to pay here, as well as the poor ETF metrics, this one’s a sell in my book.
