Investing in the Digital Assets Economy
May 04, 2021
Watch Time 5:52 MIN
Jenna Dagenhart: Digital assets are gaining a lot of steam and a lot of popularity. Joining us now from VanEck, we have Product Manager JP Lee and Director of Digital Asset Strategy Gabor Gurbacs. Gabor, starting with you. What are digital assets?
Gabor Gurbacs: Jenna, digital assets are generally issued on the distributed ledger or blockchain technology. There are four kinds of digital assets. One, cryptocurrency. Cryptocurrencies are basically like bitcoin. They are a decentralized technology that enable people to pay without the permission of a centralized authority. These are cryptocurrencies or like bitcoin, and there are platforms. And platforms are basically like an Apple Store—Apple Store for distributed projects. So that’s like Ethereum. Ethereum is a good example. And there are decentralized applications. Decentralized applications are like applications on the Apple Store, just working on a peer-to-peer network. And then fourth, we have non-fungible tokens, NFTs or Collectible. These are basically digital coins that are unique to some blockchain, and they are verified on a blockchain.
Jenna Dagenhart: To quickly follow up on that, why are digital assets generating headlines in today's investment environment? Why are we hearing so much about them?
Gabor Gurbacs: There is a generational wealth transfer and change of trends in investing. About $68 trillion is being passed down from Baby Boomers to Millennials and Gen Z. And Millennials and Gen Z just invest in different things, like digital assets, esports technology and innovation oriented teams, so that's reason one. And then reason two is there's digital transformation going on. More people are spending time on their phones, on their television, on electronic media and internet, and digital assets are the native currencies of the internet, so that retail transition and digital transformation is the second reason. And then the third reason is bitcoin is considered as digital gold. There's a lot of money printing and inflation issues and potential concerns going around in the investment community, and bitcoin as a potential hedge for an inflationary environment. Those are the three reasons why digital assets are in the media, and they're popular today.
Jenna Dagenhart: JP, how could investors access the digital assets opportunity via publicly traded companies?
JP Lee: Sure. The VanEck Vectors Digital Transformation ETF, ticker D-A-P-P, provides exposures to companies that are actually doing business in the digital asset ecosystem. Right off the bat, it's very important to emphasize that the ETF and the underlying index do not invest in actual digital assets. There's no bitcoin or ethereum or products that are providing exposure to those kinds of currencies. The primary driver of the index construction is the idea of pure play. To be initially eligible for inclusion, a company must meet the requirements set by the index provider. They have to be doing business in the digital asset ecosystem, so excluding conglomerates and other companies which have very tangential relationships to digital assets themselves.
Jenna Dagenhart: What are some examples of digital asset companies that fit into these categories?
JP Lee: There's a wide variety of companies doing business here. It's not the same thing. It's not one size fits all. There are cryptocurrency exchanges like Coinbase. There are cryptocurrency miners like Riot Blockchain, and there's even companies that are bridging the gap between the digital asset ecosystem and the traditional finance ecosystem. A company like Silvergate Capital is providing a link between the old financial world and the new one. The key here is that it's not one company doing one thing. It's a wide variety of companies. And over time, the exposure of the ETF and the index is going to change as the market matures and develops. What the index looks like today is not necessarily what the index and ETF is going to look like in a few years. As the ecosystem develops, as new companies come to market and as certain companies do better than others, the weights and names in the ETF are going to move around with the market.
Jenna Dagenhart: So you don't necessarily have to hold bitcoin or ethereum in order to gain access to digital assets.
JP Lee: In our view, not necessarily. And there's been a lot of debate and where we are right now, there is no U.S. listed ETF, for example, to provide exposure to bitcoin. And we view this specific opportunity set as completely separate, in the same way that you would think about a gold mining strategy or ETF, which doesn't invest in actual gold bullion. It's just the miners. And this is the same thing, except it's not providing just miners. It's a wide variety of companies doing business.
Jenna Dagenhart: Well, great to have both of you. Thanks for joining us.
JP Lee: Yeah. It's always a pleasure, Jenna, have a great day.
Gabor Gurbacs: Thanks for having us, Jenna.
Jenna Dagenhart: And thank you for watching this interview with VanEck's JP Lee and Gabor Gurbacs. To receive regular updates from VanEck's experts, please visit vaneck.com/subscribe. I'm Jenna Dagenhart with Asset TV.
The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment 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. VanEck does not guarantee the accuracy of 3rd party data. Any discussion of specific securities mentioned in the video is neither an offer to sell nor a recommendation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.
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.
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