Horizons lists blockchain tracker
Mirae-owned Horizons ETF is adding to North America’s list of blockchain ETFs, listing a fund that buys companies that use blockchain as well as those that provide cryptocurrency mining hardware.
The Horizons Blockchain Technology & Hardware Index ETF (BKCH) will track the Solactive Blockchain Technology & Hardware Index.
The index uses a tiered methodology that gives one-third weighting to each of the following types of company:
- Companies that focus on developing cryptocurrency and blockchain
- Semiconductor producers
- Companies that provide the "relevant hardware" for "large-scale mining on a commercial level", the prospectus says.
Within these tiers companies are equally weighted and their weightings are capped at 5%. BKCH will charge an annual fee of 0.65%.
(Prospectus available here.)
Analysis – gaming the index: the interesting story of Riot Blockchain
The most heavily weighted company in BKCH is Riot Blockchain (RIOT), the index fact sheet says. Riot Blockchain – formerly called Bioptix, which was nominally a biotech startup – rose to notoriety for changing its name in the middle of last year's bitcoin boom. The name change and its timing caused RIOT’s stock price to quadruple in the space of two months, before sinking back down three months later. The company’s curious renaming caused it to be subpoenaed by the SEC, which believed it had made misleading claims on its filing documents.
The incident is not unique either. Beverage maker Long Island Ice Tea Corp renamed itself Long Blockchain in December and saw its share price skyrocket 300%. Despite the company saying its central business would carry on making long island ice teas.
These examples show that companies know that adding “blockchain” and “cryptocurrency” to your name and filing documents can cause your share prices to rise. They know that indexes and funds pick stocks using keyword searches and adjust their sails accordingly.
Which leads us to a question about this ETF: how will it pick blockchain companies? And how will it deal with companies gaming the system?
There are no easy answers. Given the paucity of pure play publicly listed blockchain companies, analysts and indexes have to go off publicly available documents. Here, there is plenty of scope for manipulation. It will be interesting to see how – if at all – BKCH gets around this. Is this a properly researched index, or merely an bandwagon opportunity?
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