ABOUT BLOK
The Amplify Transformational Data Sharing ETF (BLOK) is an actively managed fund, seeking to identify the leading companies focused on the transformation and development of the blockchain and cryptocurrency markets. The managers focus on how companies can capture the growth, innovation, and disruption of the blockchain paradigm shift. The evolution of the internet has changed how people communicate. We believe growth companies that embrace blockchain evolution will capture secular growth trends that are accelerating and disrupting core processes in business.
TRANSFORMATIONAL CHANGE CONTINUES
BLOK’s momentum accelerated with the month of July earning returns of 15.05%, which brought YTD NAV returns to 70.89%. Investors should note that, while one month is not a trend, we did this when Bitcoin was down almost 5%. This is important because way too often people are focused on the most obvious and accountable element to Bitcoin—aka its price. While its price action is easy to measure, its representation as a “factor” that demonstrates a road map to innovation, disruption and change is also very important. To be clear, we are not suggesting that blockchain or Bitcoin are “MEMES.” We are not maximalists! The BLOK portfolio is not managed to capture the transformation of energy to Bitcoin, the value of freedom, or a rate of inflation. Rather, the message that we are trying to communicate is that companies truly focused on blockchain will tend to be “disruptors,” looking to transform their business as they expand and grow. In our experience, Bitcoin miners trade on momentum more than valuation metrics. This statement should cause some pause for our readers since it suggests that there will be periods of irrational exuberance over rational traditional metrics. To this point we say – sorry, but transformation is not usually valued by traditional methods, which tend to look in the rearview mirror rather than ahead at what is being changed and disrupted. Our focus is on identifying how blockchain technology is integrated in businesses long-term. To this point, our goal is to identify CEOs and management teams who will likely be winners, transforming their business through blockchain. Imagine such a goal in 1994! (today.com/video/-what-is-internet-katie-couricbryant-gumbel-are-puzzled-62308421624)
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted.
ATTRIBUTION
While our holdings remained diversified across 48 securities, certain stocks performed far above the month’s 15.05% return. Like last month, miners RIOT Platforms (RIOT), Cleanspark (CLSK), Marathon Digital (MARA), Bitfarms (BITF), and HIVE Digital Technologies (HIVE) showed monthly returns of 56.68%, 40.09%, 25.22%, 24.64% and 16.91%, respectively. Canaan Inc, Customers Bancorp (CUST), CoinBase Global (COIN), MicroStrategy (MSTR) and BLOCK (SQ) also provided outsized returns of 40.09%, 38.73%, 37.82%, 27.88% and 20.97%, respectively. Our biggest market-to-market losses during the month came from the Bitcoin ETFs in Canada, which were down in a range of 4.17% to 4.7%.
REGULATION
Positive momentum is building on the regulatory front, which has been a pushback for investors. This could build foundational support for the price of digital assets like Bitcoin, Ethereum, and even Ripple. However, we recognize that not every court ruling, congressional vote, or headline will provide smooth sailing. We believe that patience will ultimately be rewarded as progress is measured by a regulatory framework that is becoming clearer with each court ruling, SEC filing, and congressional hearing.
TRANSACTIONS AND REPOSITIONING
As a reminder, we tend to move incrementally in our portfolio process given the opportunities we are constantly reviewing. The expanding database of blockchain and digital asset companies could exceed 400 public companies by year end, which demonstrates the opportunity set we are screening through when we are making changes to the portfolio.
PORTFOLIO CHANGES
We trimmed large holdings in MicroStrategy (MSTR) and Coinbase Global (COIN) as they reached our exposure limits. Like many investors, we were confused by Nasdaq’s management reversal on its decision to pursue custodial service as a business opportunity. Pursuant to process we sold our holdings. This freed up capital to further increase exposure in the emerging markets: Alibaba (BABA), Mercadolibra (MELI) and Wipro (WPRO). Earlier in the month we also increased the investment in our “core” holding, SBI Holdings, which now stands at 3.3%. SBI has long been an advocate of Ripple Holdings and XRP through early ownership in the founding enterprise Ripple, ownership in XRP, and proponent of the transferable technology. For this reason, when the court ruled in favor of Ripple over the SEC, we felt it appropriate to increase the exposure incrementally (reuters.com/legal/us-judge-says-sec-lawsuit-vs-ripple-labs-can-proceed-trial-some-claims-2023-07-13/). We think the many litigations pending in the crypto asset class will continue to add volatility and catalysts for the asset class, but this will not change the evolution of the technology.
EDUCATION
For those who just want to get educated on the blockchain, here are some links:
- According to the United States Blockchain Coalition about 276 of the Fortune 1,000 companies are focused on Web 3.0 R&D and since 2008 the industry has created more than 200,000 jobs and received over $107 billion in capital (prnewswire.com/news-releases/first-of-its-kind-report-from-the-united-states-blockchain-coalition-highlights-significant-economic-impact-of-rapidly-growinf-web3-industry-301886032.html).
- How Ai and Blockchain Are Colliding (youtu.be/fjNWJ5fd-Fg).
- Blockchain explained in a video (youtube.com/watch?v=ru_vu-T0hd8).
- Satoshi Nakamoto Original Bitcoin White paper (Bitcoin: A Peer-to-Peer Electronic Cash System bitcoin.org/bitcoin.pdf).
SUMMARY
We kept this piece shorter than usual. The performance speaks for itself. We will be traveling to California in the beginning of September. Hope to hear from anyone who has questions. Thank you for your confidence. Glad we could report the good news.
