Blockchain Equity ETFs Achieve Record Annual Returns Amidst Economic Shifts
In a remarkable turn of events, VanEck’s blockchain equity strategy emerged as the highest-performing ETF in 2023, attaining unprecedented annual returns. The VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) witnessed a staggering surge of 277.3% throughout the year, surpassing the notable performances of iShares MSCI Turkey UCITS ETF (ITKY) in 2022 and iShares Global Clean Energy UCITS ETF (INRG) in 2020.
Riding the Wave of Economic Dynamics:
The surge in risk assets, attributed to forecasts of a slowdown in interest rate hikes, contributed significantly to the success of VanEck’s blockchain equity strategy. The Softening US Consumer Price Index (CPI) coupled with a gradual deceleration and subsequent pause in interest rate hikes by the Federal Reserve provided crucial support to smaller blockchain and crypto mining companies. These entities heavily rely on substantial borrowing to fuel their growth.
Athanasios Psarofagis, an ETF analyst at Bloomberg Intelligence, remarked that the remarkable performance of DAPP in 2023 is unprecedented. While acknowledging the recent success of clean energy and Turkey ETFs, Psarofagis emphasized that the scale of achievement witnessed in blockchain equity ETFs has not been witnessed before.
Anticipated Path Forward:
With expectations of the Federal Reserve cutting interest rates three times in the coming year amid a declining US inflation rate, blockchain equity ETFs may continue to follow a similar trajectory. The conducive economic environment, marked by reduced interest rates, is likely to benefit companies within the blockchain and crypto mining sector.
DAPP Composition and Market Dynamics:
DAPP consists of 20 companies that mirror the MVIS Global Digital Assets Equity index. Predominantly featuring crypto miners such as Bitfarms, Riot Blockchain, Marathon Strategy, Hut 8 Mining Corp, and Hive Blockchain Technologies, the ETF’s composition underscores its alignment with the growing trends in the blockchain industry.
It is noteworthy that DAPP faced a stark decline of -84.2% in 2022, a consequence of relentless rate hikes imposed by the Federal Reserve and central banks globally.
Notable Performances in Other Sectors:
The year 2022 proved to be significant for ITKY, experiencing a substantial jump of 112.4%. This surge can be attributed to Turkey’s unconventional turnaround, marked by a departure from the prevailing trend of rate hikes. President Recep Erdogan implemented interest rate cuts, aiming to stimulate consumer spending and boost the economy.
In contrast, INRG showcased an impressive performance in 2020, with a jump of 134.8%. This surge was driven by heightened investor confidence in the renewable energy sector, spurred by President Joe Biden’s election victory and subsequent policies such as the American Jobs Plan and Inflation Reduction Act.
The remarkable success of VanEck’s blockchain equity strategy in 2023, coupled with the contrasting performances of other ETFs in recent years, highlights the dynamic nature of the financial markets. As economic shifts continue to influence investment landscapes, blockchain equity ETFs appear to be positioned for continued growth, buoyed by evolving market dynamics and policy changes.