Invest in the ‘picks and shovels’ driving the crypto economy
4 minutes reading time
‘During the gold rush it’s a good time to be in the pick and shovel business’ – Mark Twain
Digital assets such as Bitcoin have been described as the next technological revolution on the scale of the internet1.
Cryptocurrencies have also been the best-performing asset class in the world over the past 10 years, producing significant gains for investors who have timed their investment decisions well (as observers will know, this performance has been associated with a very high level of price volatility)2.
However, while many investors are excited about the prospects for the crypto sector, some may not be comfortable with the complications and complexity of holding digital assets directly. For those investors, investing in the companies that are driving the crypto economy provides an alternative way to gain exposure to the sector.
Investors can now consider the BetaShares Crypto Innovators ETF (CRYP), which provides dedicated exposure to the companies at the forefront of the crypto economy, in a familiar, liquid and cost-effective ETF structure.
For investors who do have direct cryptocurrency holdings, CRYP can provide a complementary exposure and diversification via companies involved in the broader crypto ecosystem.
What are digital assets?
The most well-known digital assets are cryptocurrencies such as Bitcoin and Ethereum.
A cryptocurrency can be thought of as an internet-based medium of exchange, as distinct from physical money such as banknotes and coins. A cryptocurrency is a type of digital token that makes use of cryptography to secure transactions and to control the creation of new units in the currency. Transactions of cryptocurrencies utilise distributed ledger technology (DLT), typically blockchain technology, on peer-to-peer networks.
As well as cryptocurrencies, other infrastructure providers and market participants play an essential role in the crypto-economy. These include:
- crypto trading venues, such as cryptocurrency exchanges
- crypto mining companies and mining equipment firms
- companies that hold Bitcoin or other cryptocurrencies as a Treasury asset
- other service providers, such as companies that produce software to manage cryptocurrency transactions and payments.
Investing in a portfolio of companies in the crypto ecosystem offers exposure to the growth potential of the crypto economy, but without the complexity and specific risks of a direct investment in a cryptocurrency. Due to the highly speculative nature of crypto assets, exposure to crypto-focused companies nevertheless involves very high risk of loss.
An investment in companies in the crypto ecosystem can be seen as taking a ‘picks and shovels’ approach to investing in the crypto economy – the crypto equivalent of investing in miners and suppliers of mining equipment and services, instead of investing directly in gold or copper.
About the BetaShares Crypto Innovators ETF (ASX: CRYP)
CRYP provides exposure to a portfolio of companies leading the crypto economy, in a single trade on the ASX.
CRYP aims to track the Bitwise Crypto Innovators Index (before fees and expenses), which was designed to capture the full breadth of the crypto-equity ecosystem. The underlying index was built by Bitwise, one of the largest and most established crypto-asset managers in the world.
The chart below shows the industry breakdown of the index, as at 15 October 2021.
At least 85% of the index (at quarterly rebalance dates) is focused on pure-play crypto companies, including crypto trading venues, crypto mining and mining equipment firms, and service providers, or companies that hold at least 75% of their net assets in the form of cryptocurrency.
Current portfolio holdings include Bitcoin mining company Riot Blockchain (RIOT), cryptocurrency exchange platform Coinbase (COIN), and Silvergate Capital (SI), a provider of financial infrastructure solutions and services to participants in the digital currency industry.
Up to 15% of the index comprises supporting companies – innovative diversified large cap firms with at least one significant business line focused on the crypto economy. Examples include PayPal (PYPL), which enables users in the U.S. to buy and sell with four different cryptocurrencies directly through PayPal, and Nvidia (NVDA), which produces a graphics processing unit (GPU) designed for professional cryptocurrency mining operations3.
CRYP provides focused exposure to the crypto economy within the familiar ETF structure. You can invest in CRYP on the ASX just as you would invest in any share or ETF. For investors who already have direct cryptocurrency holdings, CRYP can provide a complementary exposure and diversification via companies involved in the broader crypto ecosystem.
For more information about CRYP, please request an Info Pack. For more information about cryptocurrencies, and where an investment in crypto can fit in an investment portfolio, please read our Investor’s Guide to Crypto.
Manager – Investment CommunicationRead more from Richard.