Steps Forward in 2026 with The Market Structure Bill
As of December 31st, BLOK is up 32.95% year-to-date for 2025. During the Fourth Quarter the Fund was down 14.50%. (NAV returns, view standardized performance). This performance is challenging to absorb. However, periods of volatility are inherent when investing in innovative and disruptive areas. As an actively managed diversified strategy, we have mitigated some risk associated with operational risk and our systematic trimming of positions above 5% historically has proven to be well timed. In addition, as an actively managed strategy we are constantly reviewing the market dynamics as well as the business and technology prospects of our holdings. Such discipline historically has helped us maintain strong upside to capture when markets turn back to risk-on.
The performance data quoted represents past performance and does not guarantee future results. 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. Current performance may be lower or higher than the performance quoted. For most recent month-end performance, visit BLOKETF.com.
To provide further context it is also worth noting that historically, we have maintained our top 10 holdings in the range of 34-38% of the portfolio so investors should also look to the next level of ownership within the next twenty companies in the portfolio for future upside and momentum. Ultimately, however, broadly speaking the Fund is an infrastructure strategy with performance that will be driven by three catalysts we reference through the acronym RACs.
In hindsight, to some degree, we argue that the government shut down contributed to the pullback, as it delayed regulatory progress and created some congestion related to the IPO market. Arguably, for new investors, this short-term friction in momentum resulted in a temporary price pullback within the broader context of accelerating adoption, which could ultimately prove to be a narrow price opportunity.
Outlook for 2026
We are, of course, anticipating a strong 2026 as driven by increased trading activity across platform companies such as Robinhood (HOOD), Coinbase Global (COIN), and Webull (BULL). Although trading was soft in the fourth quarter, it is becoming clear that, as more firms open up to the digital asset category, trading activity is likely to rebound. Platform companies currently represent 34% of the portfolio.
Bitcoin price action also tends to reflect sentiment, as volatility in Bitcoin fuels trading activity across the ecosystem. Bitcoin’s performance in 2025 was disappointing to many investors, and as a result, for that reason we think the broad sentiment by those who were overly excited about 2025 has turned benign. We believe this will change as more institutional flows increase through U.S. ETFs and as large pools of capital abroad enter the market. However, crypto price action should not be the only metric used to define momentum behind Blockchain adoption.
Regulatory Environment: The CLARITY Act (Digital Asset Market Clarity Act)3
In January, headlines may focus on the legislative progress for the Digital Asset Market Structure: The Clarity Act of 2025 (aka the Clarity Act). While the Genius Act focused specifically on regulating stablecoins, the CLARITY Act takes a broader approach by proposing a general market-structure framework for other digital assets and clarifying the respective roles of the SEC and CFTC. By granting CFTC exclusive oversight of digital-commodity intermediaries—such as exchanges, brokers, and dealers, congress aims to create a more cohesive and predictable regulatory environment for market participants. This shift is not merely bureaucratic; it is a strategic move to position the U.S. as a global leader in digital asset innovation while addressing the fragmented regulatory landscape that has stifled growth for years.
The Clarity Act’s most transformative impact could be on its path forward for institutional adoption, but as would be expected the debate and markup period could be volatile. Questions about yield payments and the effects of regulation and disruption across the banking industry is a significant question within context of stablecoins. Decentralized finance (DeFi) also presents regulatory hurdles since DeFi activities from registration requirements arguably should be equal to Traditional Finance (TradFi) requirements if the system is going to preserve anti-fraud and anti-money laundering (AML) enforcement. This balance is critical: overregulation could stifle innovation, while under-regulation risks reputational damage. The CFTC's upcoming Core Principles for exchanges will need to address these nuances to maintain the U.S.'s competitive edge.
The Market Structure Bill, known as CLARITY Act, is more than a regulatory fix - it is a catalyst for broad institutional and business adoption. The fact is that this change is technologically revolutionary in its evolutionary framework. By resolving jurisdictional conflicts, standardizing definitions, and fostering innovation, the Act has the potential to transform the U.S. crypto market from a speculative niche into a cornerstone of modern financial infrastructure. However, its success hinges on the Senate's ability to consolidate competing “Market-Up” proposals and the review and or integration of some 100 amendments.
If executed effectively, the U.S. could emerge as the global leader in digital assets, attracting capital, talent, and technological advancements that redefine finance in the 21st century. There will be a great deal of discussions required to build consensus around the bipartisan Market Structure Bill, and the path forward will have many fits and starts. We believe most people are expecting the best-case scenario for a bill moving through congress for the President’s signature not getting through until Q2.
Adoption Accelerating
On December 11, 2025, the SEC staff issued a no-action letter to the Depository Trust Company & Clearing (DTCC) to move forward to tokenizing certain liquid securities, including the Russell 1000. Faster, cheaper and conforming to regulation is the common theme, but the broader operational implications around this change are significant. In 2024, the DTCC processed security transactions valued at approximately $3.7 quadrillion (quadrillion is a thousand trillion) and every day DTCC processes over one hundred million transactions daily, valued at approximately $1.2 trillion. DTCC custodies or services something north of $100 trillion.1
On January 7, JP Morgan is building its own “regulated interoperable digital money” (JPM Coin) that can move near-instantly and securely across financial markets using the Ethereum Blockchain. Similar, to DTCC, the JPM Coin will be integrated on the Coinbase, to Digital Asset’s privacy-focused Canton Network.2
Figure Technology (FIGR), which only became public on September 11th, has filed to tokenize its own stock on the Provenance Blockchain with benefits of demand creation that come from lending out its shares. Investors who transfer or sell their shares to the tokenized structure provide buyers with the ability of direct stock loan yield on loaned out shares. This is the first of its kind and pending approval by the SEC. (See Prospectus Link). We would note that this new system by-passes DTCC and may have potential implications to the traditional exchanges and brokerage firms. Galaxy Digital and about two hundred other public companies have been tokenized in some form or fashion on Robinhood, but Figure platform solution is structured to foster liquidity with more institutional follow-through and represents real ownership that can also be leveraged for purposes of liquidity. A successful launch could open the door to other stocks being tokenized using the same methodology. The goal will be to provide access to self-custody immediately which is very different than other stocks which have been tokenized. We are optimistic that this launch will take place in this First Quarter of 2026.
The finance industry—which includes banking, credit-card processors, and broader Wall Street institutions—has historically been a natural setting for this type of innovation because out of competitive pressures and periodic disruption, suggests that companies may need to adjust their operations and strategies as market structures evolve. Arguably, Bitcoin’s emergence as an alternative asset class represented an initial wave, functioning for some as a store of value and establishing blockchain technology as a reliable transference of value. The tokenization of treasuries as stablecoins can be viewed as the second wave, with the potential tokenization of equities rep-resenting a third wave. Private equity, mortgages, private credit, and other forms of liquid fixed in-come are often discussed as the natural product extension. We see the ongoing development of tokenized assets on blockchain as opportunities and implications for areas such as home-ownership models. Maybe just a vision – but the conceptual ideas such as crowd sourcing of home ownership according to zip codes and or price tracking has multi-level implications for the revital-izing of owning your dream home.
Some observers remain skeptical and may seek greater clarity around how these developments could evolve. To be clear, this discussion does not suggest a direct or consistent correlation between price, value, and technological change. We want this to highlight that if someone waits to see the safe route, they may have limited participation. (Horse & Buggy vs Car vs rail vs Airplanes, Steps vs. elevator, Internet vs Stamp ETC ETC).
Favorable Capital Markets Outlook
We believe the capital markets activity for Blockchain-Technology infrastructure companies may pick up following the pause due to the government shutdown. The first example in the industry Bitgo, a crypto-custody company (joined coincidentally in 2021) had an acquisition agreement with Galaxy Digital—another BLOK holding. At the time market conditions, regulation, and products were less developed, and the $1.2 billion was called off in 2022. Although BitGo’s market cap today in investments has reported as potentially 2x higher than the investment path, back then it was hostile and the company was losing money. Today they are set up for significant earnings growth. This will be the first IPO deal in a string of high-quality deals, and we believe about thirty companies to come public in 2026 which expands further our universe of companies in our space.
We see the public capital markets offering a potential clear opportunity and competitive advantage for companies in the Blockchain space. We anticipate many Digital Asset Treasury companies (DATS) will serve as platforms for companies to come public and the SPAC market to be under more scrutiny. Simply just HODLing (Hold On For Dar Life) digital assets may not provide a lasting competitive advantage for many companies. Bottomline, in the equity markets, we see consolidation of business opportunities using share issuance often as discussed is one-way fragmented market called DEFI a significant opportunity for growth. We also see those companies with sufficient scale may also evaluate access to debt markets, including the convertible market where capital is very cheap.
The tokenization of finance in the form of securities or other real-world assets (RWA) – can achieve scale quickly because the total addressable markets are in the trillions, but as solutions they must offer tangible benefits to the investor beyond just the appearance of liquidity and lower cost. Real World Assets (RWA) remains relatively small and by its nature of being a decentralized segment of the broader market is very fragmented.
|
Transactions and Repositing Earlier in December we took advantage of the pullback in IREN LTD (IREN) and bought a nearly 1% portfolio position. Our investment process incorporates relative risk/reward considerations and experience around individual business models and management teams. Over the past eight years, this perspective has been our secret sauce based upon our knowledge round navigating the ecosystem. In early December we made an incremental swap by buying a 1% position in IREN LTD which had been cut in half and then later reduced part of our positive position in HUT8 to fund that earlier position. Our process emphasizes that we are very precise in our allocation towards industry risk, which forces us to constantly assess our positioning around the mix of risks that we are taking on across industries. |
Russell 1000® Value Index that measures the performance of the large-cap value segment of the US equity universe.