Blockchain technology is often associated with the world of cryptocurrency, and although the latter is widely considered the starting point of the former, blockchain is a rapidly growing and rapidly evolving concept with applications in a variety of industries.
This extended use case is relevant for investors considering blockchain stocks and exchange-traded funds such as the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC). BLKC tracks the Alerian Galaxy Global Blockchain Equity, Trusts and ETPs Index and houses 55 holdings.
While some of the ETF components are direct plays on bitcoin prices and the broader crypto universe, the Invesco fund also offers substantial leverage on blockchain expansion. Some analysts see the financial services sector as prime territory for this expansion.
“blockchain And digital assets open the door to new markets, products and processes for institutional investors. They are used to address certain pain points in investing, including the speed with which trades can reach their finality, the transparency of trading records for price discovery, and the creation of liquidity for previously illiquid assets” , according to a recent report by Cowen.
BLKC allocates more than 16% of its weight to the financial services sector, and some of the ETF’s holdings in this group certainly fit the definition of “big banks.” This is relevant as some of these companies are already adopting blockchain technology.
“Financial institutions realized very quickly that this was a transformative technology. More than 40 of the world’s largest banks have collaborated to create the world’s first financial services blockchain, R3 Corda. ING and Credit Suisse executed their first blockchain-based securities transactions over five years ago, and in 2020 JP Morgan executed its first intraday repo settlement on what has now become its Onyx Digital Assets platform,” Cowen added.
JPMorgan Chase & Co. (NYSE: JPM) represents 1.48% of BLKC’s listing. Big banks and other financial services companies have other reasons to consider blockchain technologies. These include increased efficiency, strengthening technology stacks, and strengthening security – all of which can have significant impacts on bottom line growth.
“Regulation is also evolving to meet the needs of this brave new world. The early involvement of banks and financial services ensured that consumer security was always going to impact the use of blockchain and digital assets. Regulators are beginning to make progress in applying existing consumer protection rules to digital asset companies. Strong anti-money laundering measures, including the recent shutdown of dark web trading, have reduced opportunities for cybercriminals and fraudsters to hide from forensic investigators,” Cowen concluded.
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VettaFi LLC (“VettaFi”) is the index provider for BLKC, for which it receives an index license fee. However, BLKC is not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of BLKC.