The growing popularity of cryptocurrencies has paved the way for a digital transformation, and along with the rise of digital assets such as non-fungible tokens (NFTs), new opportunities for investors are emerging from the digital assets ecosystem. Over the past year alone, interest in digital assets has increased considerably, spurred by many of the changes resulting from COVID-19. As companies have shifted away from cash, digital assets have helped to bridge the gaps caused by the pandemic.
Below, we highlight some of the key things to know about the digital assets ecosystem and where it may be headed in the future.
The Digital Asset Landscape
While many investors are familiar with some of the key terms surrounding cryptocurrencies, digital assets are not as well understood. Encompassing everything from decentralized applications to NFTs, digital assets fall under the blockchain umbrella and refer to currencies and technologies that exist in the digital space.
If that sounds like a broad definition, it’s because digital assets are continuously evolving along with the technologies and companies that support them.
Accessing Digital Transformation Through ETFs
For those interested in incorporating digital assets into their portfolios, having a big-picture view of the landscape is often a great first step. This includes knowing the types of companies operating within this ecosystem to bring digital assets into the mainstream.
Known as digital transformation companies, these organizations include asset management firms, payment gateways, and exchanges where digital assets are traded. They also include software and hardware development companies that facilitate digital transactions. The infographic below sheds some additional light on digital transformation companies.
By enabling digital assets to be used more widely, these companies play a big role in the digital transformation currently underway. They also present some unique investment opportunities.
If you’re interested in gaining exposure to these companies, investment vehicles such as ETFs and mutual funds are often a solid option. The VanEck Vectors Digital Transformation ETF (DAPP is one such fund, providing access to companies that are taking part in the digital asset economy. Due to its allocation, the DAPP includes 25 holdings and offers diversified exposure.
Where Digital Assets Are Headed
Another component to investing in digital transformation companies is having a clear understanding of where they’re headed in the future. While their rapid growth makes it hard to pinpoint an exact trajectory, the market cap and revenue of digital companies tell a compelling story.
Over the past five years, the market cap has soared from less than $10 billion to nearly $100 billion and the revenue has tripled. This type of growth is likely to continue in the future, providing new opportunities for investors.
The past two years have led to some notable changes in how we think of digital assets and the companies making them accessible. While investing in these assets carries a certain level of risk, the broader themes they reflect are likely to lead to lasting change. Digital transformation companies offer exposure to those themes while helping to mitigate some of the aforementioned risks. As these types of companies move further into the mainstream, retail and institutional investors will increasingly take notice.
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.