VanEck bitcoin miners
VanEck is launching a bitcoin miners ETF, in what is quickly becoming a crowded niche.
The VanEck Digital Assets Mining ETF (DAM), which has listed on Nasdaq, tracks the MVIS Global Digital Assets Mining Index. MVIS, the index provider, is a subsidiary of VanEck.
The index is made of 25 global companies that make most of their money mining bitcoins, or in some other form of blockchain network validation.
The idea is not new. Two ETF start-ups Viridi and Valkyrie launched bitcoin miners ETFs last year (RIGZ and WMGI). Invesco launched SATO, which is very similar. However today’s launch is cheaper than all three by at least 10 basis points. VanEck already provides the VanEck Digital Transformation ETF (DAPP), which also targets bitcoin miners.
The fund charges 0.50%.
Bernie’s commentary – founder conviction
If you want to build an ETF that its very similar to your competitors, then differentiate yourself on price – that’s fine. Underprice and scale is an established route to success—especially when ETF providers are taking on smaller weaker competitors. BlackRock has made a career out of this in Europe.
What is harder, though, is building an ETF that’s very similar to your existing product and at the same fee. This is because there is little new. Yet this is what VanEck appears to have done with DAM and DAPP, its bitcoin miners ETF that it listed in April 2021.
DAPP has a very similar investment objective to DAM. According to an analysis from Dan Mika over at ETF.com, “[DAPP and DAM] are highly correlated, with 95.7% of DAM’s weight invested in companies that are also tracked by DAPP’s index.”
With 95% overlap, a lot of investors will think that you’ve built the same thing twice. And if two funds do have a correlation of .95, then legally speaking you’re safe as a tracker. (ETF prospectuses say they aim for correlations of .95 with their index, although in practice they usually do better. However 95% stock overlap is not the same thing as 0.95 correlation). And any existing unitholder is going to say: “why do I need DAM when I’ve already got DAPP?”
Adding to this puzzling picture is the fact that this isn’t a profitable thematic or niche. DAPP has just $48 million under management. While SATO, RIGZ, WGMI (discussed above) have less than that.
So onlookers might be forgiven for wondering what’s going on here? My best guess – and I’m only guessing – is founder conviction. I suspect Jan Van Eck is very bullish on crypto and blockchain. And his thinking is that while the niche may be unprofitable and small now, it will grow in the future. And this in turn may justify launching two very similar ETFs.
Whether this is right or not we’ll have to wait and see.