Summary The Global X Blockchain ETF is a buy due to its fair valuations and strong growth potential, driven by Bitcoin's bullish momentum. BKCH offers dual exposure to digital assets and blockchain technology, with a market-cap weighted structure and an expense ratio of 0.50%. Bitcoin's potential establishment as a strategic reserve by multiple countries could drive BKCH higher, despite short-term risks and bearish futures options. Despite risks, BKCH's current momentum and multiple Bitcoin catalysts suggest significant upside potential, making it a timely investment opportunity. The Global X Blockchain ETF ( BKCH ) is a buy despite its holdings trading at high valuations. I feel that the valuations of these companies is fair, and that it reflects the strong growth potential. With Bitcoin (BTC-USD) bulls fighting to maintain the $100,000 support, I feel that market sentiment for the BKCH ETF will see it move to new heights. I then recommend investors to buy this ETF to benefit from the tailwinds lifting the broader market as well as cryptocurrencies. Overview I feel that the Global X Blockchain ETF is appealing for many reasons that allow dual exposure to both the appreciation of digital assets as well as the underlying blockchain technology. BKCH tracks the Solactive Blockchain Index, and this currently consists of 25 holdings that allow for broad exposure. The ETF is market-cap weighted, with the largest companies receiving greater allocations. It has an expense ratio of 0.50% and has approximately $226.8 million of net assets. This gives BKCH a net asset value of $68.18 at the time of writing. Seeking Alpha Market-cap weighted ETFs are sometimes critiqued for their lack of sophistication. When compared to equal-weighted ETFs, which tend to lock in more consistent Net Asset Value ((NAV)) growth over time by buying low and selling high, ETFs like BKCH simply reflect market reality that the most-capitalized companies should have higher influence over the investment. I feel that this is especially useful now, as the momentum of BKCH is firmly in bullish territory. Seeking Alpha During strong bull markets, and especially recently due to the AI boom, market breadth has contracted significantly toward higher market-cap companies. This is evident for the S&P 500 index, as Reuters reported in October this year: The "Mag 7" stocks make up nearly one-third of the S&P 500's entire market cap, and they have accounted for 50% of the index's 22% gain so far this year, note Bank of America analysts. This seems unsustainable, and high concentration has historically been associated with lower returns, say Goldman Sachs analysts. Similarly, companies represented in the BKCH ETF are showing similar characteristics, with more speculative and earning less "value" stocks falling to the wayside in favor for firms that can deliver solid value in the short-term. My opinion then is that investors should position their portfolios to benefit from the solid momentum in the blockchain space to lock in some early gains. The top five holdings of BKCH point to a deep concentration in digital assets, rather than utilizing blockchain technology for other pragmatic purposes. The influence of Bitcoin's price action on the performance of these companies is the key driver. The top five companies below constitute approximately 50.75% of the fund's total net assets. Coinbase Global, Inc. (COIN): 13.58% MARA Holdings, Inc. (MARA): 12.55% Core Scientific, Inc. (CORZ): 10.30% Riot Platforms, Inc. (RIOT): 8.16% Hut 8 Corp. (HUT): 6.16% BKCH Fees & Performance BKCH is competitively priced ETF in my view. With an expense ratio of 0.50% it is lower than both the median and the average expense ratio of comparable ETFs by around 0.15%. Author ETF Ticker ETF Name Expense Ratio BKCH Global X Blockchain ETF 0.50% BLOK Amplify Transformational Data Sharing ETF 0.76% BLCN Siren Nasdaq NexGen Economy ETF 0.68% LEGR First Trust Indxx Innovative Transaction & Process ETF 0.65% BITQ Bitwise Crypto Industry Innovators ETF 0.85% DAPP VanEck Digital Transformation ETF 0.50% CRPT First Trust SkyBridge Crypto Industry and Digital Economy ETF 0.85% BITS Global X Blockchain & Bitcoin Strategy ETF 0.65% SATO Invesco Alerian Galaxy Crypto Economy ETF 0.60% FDIG Fidelity Crypto Industry and Digital Payments ETF 0.39% WGMI CoinShares Valkyrie Bitcoin Miners ETF 0.75% To summarize BKCH's performance: 3 Month: BKCH achieved 59.41%, slightly below the median (60.19%) but above the average (56.17%). 9 Month: BKCH matches the median (51.65%) and slightly exceeds the average (51.45%). 1 Year: BKCH's 88.39% falls short of the median (93.03%) and average (95.76%). I'd rate the performance of BKCH overall as competitive , especially when one considers they are getting a slightly cheaper expense ratio. Data by YCharts Timeframe BKCH Performance (%) Median Performance (%) Average Performance (%) 1 Month -5.13 -1.15 -0.44 3 Month 59.41 60.19 56.17 6 Month 31.83 38.39 35.47 9 Month 51.65 51.65 51.45 YTD 47.45 71.46 61.73 1 Year 88.39 93.03 95.76 Discount to NAV Another benefit that investors may enjoy is that BKCH has historically traded at a discount to its NAV. At present, its discount to NAV is the following: At a small premium over the 1-month period. At a discount for the 3-month and since inception periods. This to me indicates that it's good value overall. Global X BKCH and Bitcoin Bitcoin recently breached the USD $100,000 threshold for the first time in its nascent history, and bulls and bears have fought fiercely to establish it as a key support level moving forward. My view is that if this new support is able to be established, then a greater run up for Bitcoin will be on the cards. Data by YCharts It should be noted that the majority of the companies in the BKCH ETF all benefit directly from a rising Bitcoin price, this includes COIN, RIOT, HUT and MARA. These companies either mine cryptocurrencies that are correlated to Bitcoin or are Bitcoin miners themselves, or earn from increased trading fees and volatility in the case of COIN. It should be no surprise then that BTC and BKCH have shared a close correlation over the past year, which may be even stronger due to the general rise of equities in the broader market. Data by YCharts Valuation Here are the forward-looking reasons why I believe that a higher Bitcoin (and consequently BKCH) price will be on the cards this year and into the next. These points establish the reasons that I believe BKCH is presently undervalued: Multiple countries, including the United States and Russia are exploring the possibility of creating a "strategic Bitcoin reserve". In the U.S, Republican Senator Cynthia Lummis introduced the BITCOIN Act , proposing the U.S. purchase 1 million bitcoins over five years to address the $35 trillion national debt. Meanwhile, Russia has legalized Bitcoin and cryptocurrency mining and a proposal for a reserve of Bitcoin has been submitted for approval. This could allow Russia to both bypass sanctions as well as hedge against their falling ruble currency. The U.S. Department of Justice already holds 208,000 Bitcoin, which it acquired through confiscations of criminal enterprises and networks. These coins now are worth around $21 billion at the time of writing, which some have suggested could become the genesis of the reserve fund for the United States. Developing nations such as Argentina and El Salvador are also exploring Bitcoin as a strategic asset . My view is that as Bitcoin is normalized as an asset reserve then other developing nations that are struggling with inflation and currency depreciation will also follow suit. Adopting Bitcoin may be a way for countries to challenge U.S. dollar asymmetrically, most notably by using it as a payment layer between BRICs countries. These drivers in my view will keep BKCH at elevated levels even if the broader market cools down from overheated levels. I expect that the correlation between these two instruments to remain tight. According to analysis from Morning star, Bitcoin will benefit from a number of catalysts including Trump's pro-crypto policies. My view is that Bitcoin could reach above the $150K mark. The Fed is predicted to cut interest rates next week which would be a complementary boon to both Bitcoin as well as ETFs such as BKCH. I believe that this would create upside for both the wider equity market and give Bitcoin bulls the enthusiasm to continue pushing the price higher. Why Own BKCH Over Bitcoin? The reason I prefer BKCH over Bitcoin directly is that it constituents offer diversified earnings potential rather than directly owning Bitcoin. BKCH for instance offers investors the ability to trade covered calls and cash-secured puts which increases their income potential. Furthermore, BKCH gives investors exposure to both the raging bull market for equities as well as the bull market for cryptocurrencies in general. Risks There are some signs that Bitcoin bulls are becoming exhausted in the short-term, with the futures options market predicting that Bitcoin will suffer some losses in the short-term. Buyers may have spent up most of their enthusiasm pushing it to a new all-time high. Barchart The options on futures this month is decidedly bearish for Bitcoin, with a put/call premium ratio of 1.72 and a put/call open interest ratio of 1.27. Explained simply, this means there is more money being spent on puts and calls, and that there are more open put contracts than call contracts for December. With implied volatility at 56.01%, we are in a rocky territory, that will, more likely than not, result in a downward correction. My view coming up to the $100,000 mark is if it is lost, we will fall considerably due to the psychological importance of that number alone. Finally, buying at these extreme levels for the Bitcoin and the broader market is particularly risky. If the greed and enthusiasm runs out, it could be a long time before investors break even. Conclusion Despite the risks, I feel that now is good time for investors to hop on BKCH due to its incredible momentum that will likely lead to more upside ahead. Multiple catalysts for Bitcoin are developing below the surface, which, I think, could lead to one of the biggest "told you so" moments we've seen so far for the digital asset.
