Crypto ETFs Are the Top Fund Performers as New Year Rally Strengthens

The crypto-focused exchange-traded fund (ETF) market has seen a topside push in 2023 amid a surge in cryptocurrency prices.

So far this year, the 14 top-performing ETFs are all tied to digital assets, excluding leveraged products, out of about 2,000 funds tracked by Bloomberg, the media reported Friday, noting that crypto funds are dominating the $6.8 trillion ETF market.

The topside push by crypto funds comes as digital assets are off to a shining start this year. Bitcoin, the world’s largest cryptocurrency, has passed the $21,000 price mark over the past day after months of inactivity. Ethereum has also reached around $1,600. Both coins have gained around 10% over the past day.

Crypto ETFs have come to the spotlight this year after a lackluster performance last year. In 2022, cryptocurrency-linked funds were among the worst performers as the industry lost around $2 trillion worth of value amid the collapse of a number of high-level projects. 

More specifically, the Valkyrie Bitcoin Miners ETF (WGMI), a major Bitcoin mining fund with investment in 20 firms, including Argo Blockchain, Bitfarm and Intel, among other notable names, has gained around 70% year to date.

The WGMI ETF was listed on the Nasdaq in February 2022 but didn’t invest directly in BTC. 80% of its net assets offer exposure through the securities of companies that derive at least 50% of their revenue or profits from BTC mining. Valkyrie invests the rest of the 20% in companies holding “a significant portion of their net assets” in Bitcoin.

Furthermore, the VanEck Digital Assets Mining ETF (DAM) has surged roughly 56%, data compiled by Bloomberg show. The fund largely consisted of Bitcoin mining companies Riot, HIVE Blockchain Technologies, and Marathon Digital Holdings, among others. 

Double-digit gains in the VanEck Digital Transformation ETF (DAPP), the Global X Blockchain ETF (BKCH) and the Bitwise Crypto Industry Innovators ETF (BITQ) help the funds rank among the five best-performing exchange-traded funds this year. Athanasios Psarofagis at Bloomberg Intelligence, said:

“There is a bit of a reversion to the mean happening to start the year — the worst-performing equity ETFs of 2022 are starting on the strongest foot in 2023, most notably crypto-linked ETFs. Investors who tax loss harvested in 2022 might be looking to get back in now.”

Crypto ETFs provide exposure to the crypto without the additional expenses of ownership. Therefore, these funds are considered as the next big step for the crypto industry that could drive mainstream adoption. 

Launched in 2021, ProShares Bitcoin Strategy ETF was the first Bitcoin ETF to be approved in the United States. However, this fund tracks Bitcoin prices through futures contracts traded on the CME marketplace in contrast to a spot Bitcoin ETF.