Invest in the Digital Assets TransformationJohn Patrick Lee, CFA, Product ManagerApril 14, 2021
The digital transformation is underway. In recent years, digital assets have started to mature, evidenced by increased global adoption by both retail and institutional investors. Against this backdrop, we believe that companies involved in the digital transformation of the global economy represents a long-term structural growth opportunity that is becoming more and more accessible to investors.
What Are Digital Assets?
The term “digital assets” encompasses a broad range of technology and applications, commonly referred to as blockchain or distributed ledger technology. Digital assets can take a variety of forms, and are not just limited to cryptocurrencies.
Companies at the Forefront of the Digital Asset Transformation
The companies involved in the digital transformation are distinctly different from digital assets themselves. Digital transformation companies may range from digital asset mining to hardware to exchanges that facilitate the trading of digital assets.
Digital transformation companies may engage in only one of these business lines, or they may engage in multiple, depending on their goals, capabilities and focus within the broader digital transformation space. Below are two quick examples to illustrate how different companies are generating digital transformation-related revenues.
Square* (SQ), the top weighted payment gateway company in the MVIS Global Digital Assets Equity Index, helps sellers start, run and grow their businesses. Investors and consumers can purchase cryptocurrency on Square’s popular CashApp. According to SEC filings, Square “recognizes revenue when customers purchase bitcoin and it is transferred to the customer’s account.” In 2020, that amounted to $4.57 billion in bitcoin-related revenues, an increase of 785% from the year before.1
Voyager Digital* (VYGR) focuses on enabling users to buy and sell cryptocurrencies across multiple exchanges in one account. According to SEC filings, Voyager “offers investors, developers and platform providers a fully functional suite of APIs and mobile apps to allow anyone the ability to invest, earn and secure multiple types of digital assets.” As of March 31, 2021, Voyager had over $2.4 billion in assets under management and 270,000 funded accounts.2
Digital Transformation Companies Reflect a Structural Growth Opportunity
The opportunity set of publicly traded, pure-play digital transformation companies is still young, but has grown in both size and revenues over the last few years. Despite underlying volatility in digital assets themselves, many publicly traded companies are investing heavily in new business lines to position themselves favorably as digital asset usage and adoption continues to accelerate.
The Growth of Publicly Traded Digital Transformation Companies (2012 – 2020)
Source: VanEck. Revenues and market caps reflect pure-play digital asset companies as defined by MVIS and included in the composition of the MVIS Global Digital Assets Equity Index on 3/31/21. See important disclosures and index descriptions at end.
The digital transformation opportunity set currently has fewer listed companies compared to more mature industries. However, we believe that as digital assets use cases and adoption grow over time, these early-mover companies may benefit, and that more digital transformation companies will go public.
DAPP: Exposure to Digital Transformation
The VanEck Vectors Digital Transformation ETF (DAPP) seeks to track the MVIS Global Digital Assets Equity Index (MVDAPPTR), which provides exposure to the companies involved in the digital transformation of the global economy. DAPP’s underlying index only invests in digital transformation companies, and does not invest in actual digital assets like cryptocurrencies, or cryptocurrency investment vehicles. The index is designed to provide pure-play exposure to the companies that are actively participating in the digital transformation, which may benefit from the structural long-term growth of digital assets.
* Voyager Digital and Square were the top two holdings in the MVIS Global Digital Asset Equity Index on 4/9/21.
1 Source: https://www.coindesk.com/square-cash-app-bitcoin-revenues-swell-785-in-2020.
2 Source: Voyager Digital, March 2021.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities or financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
The Fund will not invest in digital assets (including cryptocurrencies) (i) directly or (ii) indirectly through the use of digital asset derivatives. The Fund also will not invest in initial coin offerings. Therefore the Fund is not expected to track the price movement of any digital asset.
Investors in the Fund should be willing to accept a high degree of volatility in the price of the Fund’s Shares and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk. An investment in the Fund is not a deposit with a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Therefore, you should consider carefully various risks before investing in the Fund, each of which could significantly and adversely affect the value of an investment in the Fund.
An investment in the Fund may be subject to risks which include, among others, risks related to investing in digital transformation companies, investing in equity securities, Canadian issuers, small- and medium-capitalization companies, information technology and financials sectors, foreign securities, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and concentration risks which may make these investments volatile in price or difficult to trade. Small- and medium-capitalization companies may be subject to elevated risks.
The technology relating to digital assets, including blockchain, is new and developing and the risks associated with digital assets may not fully emerge until the technology is widely used. Digital asset technologies are used by companies to optimize their business practices, whether by using the technology within their business or operating business lines involved in the operation of the technology. The cryptographic keys necessary to transact a digital asset may be subject to theft, loss, or destruction, which could adversely affect a company’s business or operations if it were dependent on the digital asset. There may be risks posed by the lack of regulation for digital assets and any future regulatory developments could affect the viability and expansion of the use of digital assets.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Authored byJohn Patrick Lee, CFA