A recently launched exchange-traded fund has benefited from the turmoil in the cryptocurrency industry and is up more than 20% since its inception in September.
The Defiance Daily Short Digitizing the Economy ETF IBIT,
which is a bet against the ETF Amplify Transformational Data Sharing BLOCK,
is up nearly 21% since it began trading on Sept. 8, according to FactSet data through Monday.
The Amplify ETF, which seeks to identify companies focused on transforming and growing blockchain and cryptocurrency markets, has fallen so far in 2022. It was down 60.1% through Monday this year, according to data from FactSet.
Defiance created the short ETF with the idea that the crypto industry would suffer immensely if an event such as an exchange company got into trouble, Sylvia Jablonski, general manager and chief investment officer of Defiance ETF, said in a telephone interview.
“We never thought it would be in FTX,” she said. “FTX would be this kind of stable white knight in the crypto industry.”
FTX, the crypto exchange founded by former CEO Sam Bankman-Fried, filed for bankruptcy protection on Nov. 11. companies can also fall.
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John Ray, III, the new CEO of FTX, filed a statement in U.S. bankruptcy court last week assessing the company’s collapse. He said he was unable to list FTX’s 50 largest creditors, including customers, among other disclosures.
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Defiance considered the Amplify fund to be a good representation of companies related to blockchain technology, digital assets and the crypto industry, Jablonski said, “so we shorted that ETF.”
At the end of October, the top 10 actively managed Amplify Transformational Data Sharing ETF included MicroStrategy Inc. MSTR,
International Business Machines Corp., Accenture Plc, SBI Holdings Inc., Overstock.com Inc., GMO Internet Group, CME Group Inc., Coinbase Global Inc. coin,
Silvergate Capital Corp. IF,
Marathon Digital Holdings Inc. MARA,
according to the fund’s November report.
Other companies held by the ETF last month included Block Inc. SQ,
Riot Blockchain Inc. RIOT,
Digital Garage Inc., Hive Blockchain Technologies, Galaxy Digital Holdings Ltd., Robinhood Markets Inc. HOOD,
and Roblox Corp, the report says.
Defiance expects many companies related to the crypto ecosystem to suffer from the collapse of FTX in the near term, Jablonski said. “A lot of dominoes haven’t fallen yet,” she said.
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The Defiance Daily Short Digitizing the Economy ETF is designed for investors who are either crypto-bearish or bullish but want to hedge against the current environment, Jablonski said. The fund provides daily reverse exposure to the Amplify Transformational Data Sharing ETF.
While some investors may be looking for a “permanent hedge” for their long crypto-related exposure, traders should regularly review their outlook for the industry, she said. “With inverse funds, you still want investors to make that decision on a regular basis,” Jablonski said, because “they rebalance on a daily basis.”
On the crypto long end, Defiance offers an ETF that offers exposure to blockchain-related stocks, digital assets and non-fungible token-related technologies, commonly referred to as NFTs, she said. The Defiance Digital Revolution NFTZ ETF,
which launched in December is down about 73% this year through Monday, according to data from FactSet.
While Jablonski expects “billions of dollars in losses” to come in the crypto “ecosystem” in the near term, she also believes blockchain technology and some digital assets, such as bitcoin, will survive turmoil.
Meanwhile, the ProShares Bitcoin Strategy ETF BITO,
those investing in bitcoin futures are down 66.8% this year through Monday, according to FactSet data. ProShares also offers investors a way to bet against cryptocurrency, with the ProShares Short Bitcoin Strategy ETF BITI,
Crypto is not “dead,” Jablonski said. “This is a wake-up call for the industry.”
Some investors and traders who previously “ridiculed” the idea of regulation for going against the spirit of “peer collaboration” are now “understanding” the idea that it could be “very helpful” for industry growth, she says .