DAPP: VanEck’s Excellent ETF For Bitcoin, Crypto Exchanges, And Blockchain Exposure

Summary VanEck Digital Transformation ETF offers exposure to digital asset exchanges, bitcoin miners, and blockchain infrastructure, and is up 142% over the past year. The election of Trump is expected to significantly reduce crypto regulation, making now a good time to consider investing in DAPP. DAPP is still down from its inception in April 2021, but it has significantly outperformed the S&P Cryptocurrency DeFi Index over the past 3-year and 1-year time frames. DAPP is a high-risk, high-reward investment suitable for a speculative growth category within a well-diversified portfolio, rated as a buy. The VanEck Digital Transformation ETF ( DAPP ) is a diversified yet relatively bold bet on the future of cryptocurrencies and blockchain technology. The DAPP portfolio gives investors strong exposures to Bitcoin, digital asset exchanges, crypto miners, and other blockchain-based infrastructure companies. DAPP is +142% over the past year – no doubt supercharged by the thesis that Trump 2.0 will be much more friendly than the Biden administration toward all things crypto. That said, note that DAPP is still down significantly from its inception in April 2021 (see chart below). I would argue that, given the prospects for significant reductions in crypto regulation and the Trump 2.0 momentum factor, now is a good time to consider an allocation in the DAPP ETF. Today, I’ll take a closer look at the DAPP and you can decide if it might be a good fit within your well-diversified portfolio. Data by YCharts Investment Thesis The election of Trump in November will likely lead to a step-function change in the regulatory outlook for Bitcoin and for cryptocurrencies in general. Indeed, Trump has said he wants the U.S. to become the “Bitcoin superpower of the world” and supports the establishment of a “National Bitcoin Reserve”. Indeed, Trump recently announced crypto advocate Paul Atkins as his nominee for Chairman of the SEC. While there are other factors driving the recent price appreciation of BTC (see the Barron’s article Why Did Bitcoin Surge Past $100,000 ), the response in the price of Bitcoin since the election is undeniable and has been both fast and furious: coinmarketcap.com As you can see from the graphic above, CoinMarketCap.com reports the current circulating supply of BTC is estimated to be 19.79 million and the total BTC market cap now exceeds US$2 trillion. As you know, the total possible BTC supply (i.e., the theoretical maximum mined limit) is capped at 21 million, which is estimated to be mined by the year 2140 . The point here is that there are only ~1.2 million BTC left to be mined (~5.7% of the total). With that as background, let’s take a look to see how VanEck has positioned the DAPP ETF for investor success going forward. I’ll start with a review of the top holdings. Top-10 Holdings The top-10 holdings are shown below and were taken directly from the VanEck DAPP ETF webpage where you can find more detailed information on the fund: Van Eck The #1 holding with an 11.7% weight is MicroStrategy ( MSTR ). MicroStrategy is arguably no longer a software company at all, but is, instead, a whale holder of a large reserve of Bitcoin. Indeed, Seeking Alpha reports that MSTR bought a whopping $1.5 billion worth of BTC from November 25 to December 1. The purchases were made using the proceeds of a recent $21 billion stock offering. As of December 1, MicroStrategy held an aggregate of ~402,100 Bitcoins, which were acquired at an aggregate purchase price of around $23.4 billion. Given the current BTC price (at pixel time) of $101,400, those BTCs are now worth $40.8 billion. MicroStrategy stock has soared on the “Trump trade” and is up 600%+ over the past year: Data by YCharts Coinbase Global ( COIN ) is the #2 holding with an 8.9% weight. COIN provides financial and technology infrastructure for consumers who want a marketplace to trade cryptocurrencies and/or securely accept crypto assets as payment. COIN announced its Q3 report on October 31st. Highlights included: Revenue of $1.2 billion (-17% qoq but +81% yoy) Net income of $75 million The 7th consecutive quarter of positive EBITDA ($449 million in Q3) A $1 billion share buyback plan COIN stock is +133% over the past year and trades with a forward P/E=62x (on adjusted earnings). Block ( SQ ), the old “Square”, is the #3 holding with a 6.6% weight. Block operates the popular “Cash App”, along with supporting commerce and financial products, hardware, and software services. Block has established a strong long-term track record of revenue growth: Seeking Alpha Block stock is +50% over the past year and trades with a TTM P/E=58.4x and a forward P/E=28.0x . The #7 holding with a 5.4% weight is Applied Digital Corp. ( APLD ). Applied provides and operates digital infrastructure solutions for the high-performance computing (“HPC”) and AI industries. APLD operates via three segments: Data Center Hosting Business, Cloud Services Business, and HPC Hosting Business. The company is expected to more than double revenue by 2026 (to $394 million). The Dallas-based company is +90% over the past year, but is still losing money (see Q4 FY24 results ), issuing shares (see here and here ), and taking on debt . Bitcoin miners are well represented in DAPP’s top-10 holdings with Cipher Mining ( CIFR ) and Riot Platforms ( RIOT ), in aggregate, equating to a little over 10% of the entire portfolio. New York-based Cipher develops and operates industrial-scale Bitcoin mining in the U.S. Riot Platforms is also engaged in Bitcoin mining in the U.S. and operates through 3 segments: Bitcoin Mining, Data Center Hosting, and Engineering. The stocks of these two companies have been on divergent paths this year as RIOT has faced significant financial and operational challenges : Data by YCharts Performance As mentioned earlier, and despite the excellent performance over the past 12 months, the DAPP ETF is still down significantly from its price at inception in April 2021. The fund’s 3-year average annual returns (-11%) reflect that fact: Van Eck That said, DAPP’s 3-year and 1-year performance numbers significantly beat the S&P Cryptocurrency De-Fi Index (-29.3% and +38.4%, respectively). The following graphic compares the 1-year returns of the DAPP ETF as compared to two leading Bitcoin ETFs: The Fidelity Wise Origin Bitcoin ETF ( FBTC ) and the iShares Bitcoin Trust ETF ( IBIT ): Data by YCharts Interestingly enough, the DAPP ETF has been almost directly correlated to the Bitcoin ETFs over the past 6-months, with the 12-month returns being almost identical. ETF Basics: The following bullets summarize some of the ETF metrics that investors typically care about: Expense Ratio: 0.51% Total Net Assets: $211 million # of Holdings: 22 30-day SEC yield: 0% TTM P/E Ratio: 20.4x Price-to-Book Ratio: 3.34x As you can see, the DAPP ETF is certainly more expensive as compared to a low-cost S&P500 fund (VOO’s expense fee is 0.03%). However, VanEck has a history of relatively expensive ETFs that deliver strong returns for investors (the SMH Semiconductor ETF, for example, is a favorite of mine). The DAPP ETF is still a “young fund” and $211 million of AUM is relatively tiny in the ETF universe. Likewise, the total number of holdings (22) is quite small. The (VanEck reported…) P/E and price-to-book ratios look almost too good to be true and are actually below that of the S&P500. Not sure how that works, considering many of the top holdings in the DAPP ETF are not yet GAAP earnings positive. Risks The risks of investing in DAPP are, to put it mildly, huge. I already mentioned the relatively low AUM and total number of holdings – both of which could lead to liquidity issues on a crypto-rout. Volatility is very high: back in Q2 of 2022, the DAPP ETF dropped a whopping 71%. Many of the companies in the DAPP portfolio are not yet GAAP earnings positive, and may never be. The DAPP ETF’s portfolio of companies may have elevated risks as compared to ETFs that invest directly in Bitcoin (like the FBTC and IBIT ETFs mentioned earlier) because these companies have balance sheets, employee payrolls, and operational expenses whereas pure Bitcoin, obviously, does not. Given the massive recent gains in Bitcoin and the crypto-related companies, you may have already “missed the boat” on the Trump 2.0 momentum thesis. Upside risks include investors not having any direct exposure to Bitcoin and/or blockchain-based companies, and totally missing out on a continued bull market in the space. Summary & Conclusion Followers who have read my articles on portfolio management know that many investors can afford to have a “speculative growth” category within their otherwise well-diversified portfolio. Indeed, I have written previous articles on why Bitcoin is an excellent choice for this category (i.e., high-risk, high reward). See my November 2020 Seeking Alpha article Bitcoin Penetrates Further Into The ‘Mainstream’ – It Should Penetrate Your Portfolio Too , for example. For investors who want to make an arguably more leveraged bet on Bitcoin/crypto as compared to the straight-up Bitcoin ETFs, I advise you to consider the DAPP ETF, which I rate as a buy to profit from market momentum driven by the Trump 2.0 thesis.

Source: Seeking Alpha