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New exchange traded fund taps booming appetite for NTFs

  • December 02, 2021

With approval for a conventional cryptocurrency ETF still nowhere in sight, at least one U.S. money manager is looking to tap one of the other hot trends on the blockchain.

Defiance ETFs is launching the Defiance Digital Revolution ETF (ticker NFTZ) on Thursday, which will track a blockchain-related-companies and non-fungible-token index. It won’t invest in any cryptocurrencies directly – the gauge tracks firms that have exposure to the industry – but it is one of the first ETFs to tap the booming market for NFTs.

The U.S Securities and Exchange Commission allowed an ETF that holds Bitcoin futures to begin trading in October, the closest regulators have come to approving a fund that invests in cryptocurrencies. Blockchain thematic ETFs have proliferated while the SEC rejected numerous applications for a spot ETF over the last several years.

The NFTZ fund “is a great way for investors to gain access to not only the fast-growth blockchain technology aspect of the digital world, but companies involved in the renaissance of NFTs,” said Sylvia Jablonski, chief investment officer for Defiance ETFs. “The companies in this index are key players in the build-out of Web 3.0,” or an idealized version of the internet that is decentralized and based on blockchains.

The fund carries a management fee of 0.65%, meaning $6.50 for every $1,000 invested. Its top positions are in Silvergate Capital Corp., Cloudflare, Inc., Bitfarms Ltd., Marathon Digital Holdings Inc., Hut 8 Mining Corp. and Coinbase Global Inc., among others.

NFTs, which allow holders of art, collectibles and just about any other asset to track ownership, have caught fire this year amid a wider boom in crypto markets. Investors have doled out eye-popping sums toward pictures of rocks, cartoonish depictions of penguins and apes, and other concoctions and artworks.

The website lists roughly 766,000 sales over the past month with some $1.8 billion spent overall. Not all NFTs are hits — there is plenty of data to show many are duds — but the average one has sold for around $2,326 over that stretch, the site shows.

“NFTs today are what Bitcoin was 10 years ago, except that there is a robust community made up of creators and investors who co-exist to determine the future path of a non-fungible token,” said Jablonski. “They are part of a special club, a membership, and so the investment takes on this new meaning of social interaction.”

(Adds chart.)
–With assistance from Olga Kharif, Claire Ballentine and Katie Greifeld.

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