Crypto ETFs roar into life with eye-popping 2023 returns


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A swarm of cryptocurrency-focused exchange-traded funds have enjoyed an impressive start to 2023, racking up strong gains rarely seen by diversified stock funds.

The $3.9 million Valkyrie Bitcoin Miners ETF (GTMI) has led the way with a 101 percent return since the turn of the year, but a host of rival funds have also turned in gains of between 40 and 80 percent.

Most of these ETFs are still far below water for long-term investors, having been battered by last year’s “crypto winter” and the broader sell-off in tech stocks, but the nascent rally points to the ability of the niche sector to recover due to its inherent volatility.

The partial recovery has also been echoed, although in a more modest way, by some technology funds, such as the Ark Innovation ETF (ARKK). It’s up 25 percent year-to-date, putting it on track for potentially its strongest monthly performance ever, having plunged 75 percent over the course of 2021 and 2022.

“If the Ark story sold you two years ago, the technology is now for sale,” said Kenneth Lamont, senior fund analyst for passive strategies at Morningstar.

Crypto ETFs Rally Has Been Driven By Assumptions Signs of life in the cryptocurrency market, with bitcoin having surged 38 percent on January 27 to $22,900, after an unusually long period of range trading, having fallen from an all-time high of nearly $70,000 in November 2021. Solana, a smaller digital token, has jumped 145 percent.

Reversed Year-to-Date Performance Line Chart Showing Crypto Equity ETFs Rally in January

This rebound has been largely attributed to signs that inflation may have peaked, particularly in the US, which could allow global interest rates to reach lower levels and pave the way for strategies “riskier” investment options.

“These were some of, if not the worst ETFs in 2022, so they may rally sharply, in part, because Bitcoin and other cryptocurrencies have rallied,” said Todd Rosenbluth, head of research at VettaFi.

“This is why people invest in cryptocurrencies,” Lamont said. “For many of the investors who invest in cryptocurrency, it is indeed a high-stakes game. It’s high risk and potentially high reward.”

WGMI has been the best-performing unleveraged equity ETF globally in the first weeks of 2023, according to data from Morningstar Direct, though it is still down two-thirds since its inception in February 2022.

Its biggest holdings are cryptocurrency miners Bitfarms, Marathon Digital Holdings and Digihost Technology, which have seen their share price rise between 148 and 279 percent since early January.

The VanEck Digital Asset Mining ETF (DAM) is not far behind, with holdings such as crypto miners Riot Platforms and CleanSpark and Chinese computer hardware maker Canaan helping propel it to a 77 percent gain. However, DAM has only traded back to the levels it saw in early November – still 76.8 percent below its March 2022 highs.

Line chart of performance since January 2022, rearranged showing But they are still in the red for longer periods of time

The huge bounces have not been limited to crypto mining ETFs, with the VanEck Digital Transformation ETF (DAPP), whose holdings include Block, a payments company created by Twitter co-founder Jack Dorsey, and cryptocurrency exchange Coinbase Global, an increase of 66.8%.

The Global X Blockchain ETF (BKCH), Bitwise Crypto Industry Innovators ETF (bitq) and iShares Blockchain and Tech ETF (IBLC) are also up more than 60 percent.

However, Lamont said that thematic funds were known to exhibit similar returns to “sierra.”

“Cannabis has seen some incredible swings in the past and in the post-Covid recovery, some ETFs posted triple-digit returns in the space of a year when things started picking up again,” he said.

Between April and December 2020, the Invesco Solar ETF (TAN) jumped 305 percent, according to Morningstar data, perhaps the most explosive example of thematic funds’ ability to post stellar returns when markets turn.

However, investors have largely stuck with cryptocurrency-related equity ETFs and those in the broader technology sector, despite losses last year, suggesting a degree of resilience.

“Themed funds were hit [last year]Lamont said: “75 percent have an explicit growth bias and they were hit hard. And yet we didn’t see a stampede out the door and I found that interesting.

“If you’ve bought a fundamental story, the fundamentals of these issues haven’t changed.”

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