April’s mid-monthly update concerns Bitcoin, cryptocurrencies and blockchain. The financial media has become obsessed with Bitcoin, to the extent that Bitcoin has become a metaphor for blockchain, with the latter being the important theme to focus on as far as we are concerned. Yes, there have been high-profile transactions in Bitcoin, notably by Elon Musk, and it has a scarcity value to offset the amount of electricity it takes to mine it (see the chart below) but focusing on Bitcoin obscures the bigger opportunity afforded by the use of blockchain technology in the years ahead.
Source: JP Morgan Asset Management
Store of Value
In a world where money printing by central banks inevitably leads to weaker currency, and historically a rise in inflation, investors have looked to precious metals as a store of value. In recent times, some high-profile investors have opted to use Bitcoin as an alternative to gold as a store of value.
For us, the thematic opportunity here is blockchain and definitely not the binary outcomes of cryptocurrency. Many investors believe Ethereum to be the second most used cryptocurrency. In fact, Ether is the currency within Ethereum as the latter is a decentralised open-source platform. In other words, a platform for thousands of decentralised apps (or dapps) powering a burgeoning digital economy.
Enablers & Users
Some of the blockchain users will be financial companies we would not normally buy into but by being early adopters of blockchain technology, they will be able to grow faster than their peers. You might think that blockchain is something new, but many well-known companies have already embraced it. Think Walmart, Pfizer, Visa and Siemens to name just a few of them.
The enablers make it possible for the users to access blockchain and improve their business, by improving their supply chain management or data management.
Enabled by the Ethereum blockchain ledger, non-fungible tokens have been in the news a lot recently, but while many high-profile ‘celebrities’ are cashing in on this phenomenon, it is merely a distraction to the main event.
It is not always easy to find an appropriate investment vehicle that reflects the theme that we believe in. Recently we have bought into an ETF managed by First Trust, a counterpart we know well from our investment in their cloud computing ETF, FSKY. First Trust adopt an active approach to ensure single positions do not get too large and ensure re-balancing maintains diversification. Their approach to blockchain through the First Trust Innovative Tech Units ETF (BLOK) meets our requirement to have diversified exposures to both enablers and users. Importantly, BLOK avoids investing in Bitcoin and cryptocurrency miners.
The addition to both Dynamic and Growth is the previously mentioned BLOK, funded by a reduction in iShares Digitalisation whose sale continues the trimming of the digital economy winners from the last three quarters of 2020.