Invesco has launched two new ETFs offering thematic exposure to companies operating in the digital asset and blockchain sectors as well as select investment vehicles directly investing in cryptocurrencies.
John Hoffman, Head of Americas, ETFs & Indexed Strategies at Invesco.
The Invesco Alerian Galaxy Crypto Economy ETF (SATO US) and Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC US) have been listed on Cboe BZX Exchange with expense ratios of 0.60%.
Blockchain technology continues to capture the interest of institutional and retail investors globally. Gartner forecasts that the business value generated by blockchain will grow rapidly, reaching $176 billion by 2025 and $3.1 trillion by 2030.
However, opportunities to access institutional-grade cryptocurrency and blockchain investment vehicles remain limited as the space is nascent and barriers to entry are high.
The new Invesco products aim to change that, providing diversified exposure to companies in crypto and blockchain industries, as well as indirect actual holdings of cryptocurrencies, while maintaining the added oversight, security, and liquidity of an exchange-traded fund.
The ETFs are linked to indices developed by Alerian S-Network Global Indexes in partnership with specialist digital assets and blockchain investment manager Galaxy Digital.
The Invesco Alerian Galaxy Crypto Economy ETF tracks the Alerian Galaxy Global Cryptocurrency-Focused Blockchain Equity, Trusts & ETPs Index which consists of an equity component, providing exposure to companies participating in the cryptocurrency economy, as well as a Trust/ETP component.
Within the equity component, eligible constituents may be listed anywhere globally but must have a market capitalization above $50 million and an average daily trading volume greater than $1m.
Qualifying businesses are derived from three segments: cryptocurrency miners, cryptocurrency buyers, and cryptocurrency enablers which includes exchanges, custodians, and manufacturers of semiconductors and mining machines.
‘Pure-play’ companies – those with at least 50% revenue exposure to qualifying activities or, for buyers, at least 50% of reported balance sheet assets dedicated to cryptocurrencies – are allocated 80% of the equity component’s weight and equally weighted within that tranche.
‘Non-pure-play’ companies – those that derive between 20% and 50% of their revenue from crypto activities, or dedicate between 20% and 50% of reported balance sheet assets to cryptocurrencies – are allocated the remaining 20% of the equity component’s weight and are also equally weighted within that tranche. An index committee determines which companies qualify as non-pure-play, selecting only firms that are conducting significant research and development into cryptocurrency-related technologies and are expected to have a significant impact on the sector.
The Trust/ETP component consists of investment vehicles that directly hold ‘physical’ cryptocurrency. Eligible ETPs or private investment trusts must have open-end structures, market capitalizations above $1 billion, and average daily trading volumes greater than $15 million. Current qualifying constituents include the Grayscale Bitcoin Trust and Grayscale Ethereum Trust, private funds that track the price of bitcoin and ether, respectively.
The equity component and the Trust/ETP component are assigned weights of 80% and 20%, respectively, and are rebalanced monthly.
Stocks from the US account for a third (32%) of the total index weight with companies listed in Canada (19%), China (17%), and Germany (7%) also playing notable roles. The index’s segment allocation is distributed between enablers (42%), miners (30%), and buyers (13%).
The Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF, meanwhile, tracks the Alerian Galaxy Global Blockchain Equity, Trusts & ETPs Index which follows a similar methodology except for two differences.
Firstly, the equity and Trust/ETP components are assigned weights of 85% and 15%, respectively.
Secondly, the equity component includes a fourth business segment – firms that are researching and developing blockchain technologies applied outside of the cryptocurrency domain.
Stocks from the US represent a larger share at half (50%) of the total index weight, followed by firms listed in China (13%), Canada (9%), and Germany (4%). Non-crypto blockchain companies and crypto enablers each account for 30% of the index weight, followed by miners (16%) and buyers (9%).
John Hoffman, Head of Americas, ETFs & Indexed Strategies at Invesco: “Today’s launch opens up a new way for investors to access this fast-growing asset class, combining exposure to key companies in the cryptocurrency and blockchain ecosystem with an allocation to an investment vehicle that directly holds digital assets, all within the ETF wrapper. The combined, broad expertise Alerian and Galaxy bring to these Invesco ETFs is a unique advantage and we are excited to align with both firms on a combined long-term vision around the potential digital assets and blockchain can bring to clients’ investment outcomes.”
Robert Hughes, Chief Commercial Officer at Alerian S-Network Global Indexes: “Alerian is proud to continue its track record of index innovation and partnering with industry leading firms like Invesco and Galaxy to deliver thoughtfully designed solutions to meet investor demand. Our underlying indexes were thoughtfully constructed through research and comprehensive analysis to provide unique access to the ever-growing blockchain and cryptocurrency universe.”
Steve Kurz, Head of Asset Management at Galaxy Digital: “Today marks an exciting milestone as we unlock another way for retail and institutional investors to get involved in the rapidly evolving and transformative world of digital assets. We look forward to our continued partnership with Invesco, a leader in ETFs, and Alerian, a leader in index-based investment strategies, as we continue bridging the gap between traditional and digital finance.”