blackCAT/E+ via Getty Images
Product Manager JP Lee discusses the growth potential of digital assets miners, how they fit within a portfolio and the exposure offered by the VanEck Digital Assets Mining ETF (DAM).
Transcript
Jenna Dagenhart: VanEck just launched a new fund focused on Digital Assets Mining, under the ticker DAM. This marks VanEck’s second blockchain-focused ETF. The first, of course, was DAPP, which captures the broader blockchain opportunity set.
Jenna Dagenhart: Joining us now with more is VanEck Product Manager JP Lee. JP, great to have you with us. First, what’s the difference between DAM and your digital transformation ETF? And why did you think that it was important to bring a more mining-focused product to market?
JP Lee: So, we think of DAPP, D-A-P-P, which is a digital transformation ETF, as representing the broader blockchain digital assets ecosystem. Anybody who’s doing business in blockchain is going to be potentially included in that index and ETF. D-A-M, Digital Assets Mining ETF, is focused specifically on the mining segment. The mining segment is the largest segment. If you look at the different kinds of companies that are doing business, they’re the biggest weight out of DAPP. And we’ve seen appetite and we’ve seen demand for products that are focused specifically on the miners, and that’s why this was the ETF that we launched at this time.
Jenna Dagenhart: Now, JP, as a group, how have the digital asset miners evolved over the past year?
JP Lee: That’s a good question. Over the past year – and you could say two years – we’ve seen the valuations of digital assets miners, as a group, increase dramatically. And that increase in valuation really comes from two sources. The first source would be miners that are out there doing business have seen their price appreciation – their stock price has gone up, and that’s helped lift up their valuation. And the second reason that the group has risen as a whole is because there’s been a number of IPOs that have come to market and new listings, so the size of the market has grown when you think about how many companies are out there.
Jenna Dagenhart: So why haven’t blockchain companies performed well over the past six months, JP? And from a timing perspective, what are your thoughts on these valuations right now? Where do we go from here?
JP Lee: Yeah, that’s a fair question. And I would place these blockchain companies in the same basket as growth. These are growth stocks, and when you’re looking at the market, there’s been a back and forth between growth and value over the last year, ever since the election in 2020, and growth has come up short. So tech stocks, in particular, you’ve got a rising interest rate environment, you’ve got commodities and inflation fears, and so that’s going to deflate some of the elevated P/Es (price-to-earnings ratios) and the valuations of this type of stock.
JP Lee: So when you think about all the tech stocks out there, you think about all the different levels of growth, these stocks are in that highest decile. They’re the ones that are growing the most, so their valuations were the highest, so they’ve fallen the most as well. And from a timing perspective, we think there’s a very strong case to be made that this is a good time to start thinking about a blockchain allocation, or digital asset equity allocation, because these companies are still growing like crazy. And the valuations, there might be a little bit of a disconnect there, and you think about growth at a reasonable price. I would argue this is very high growth at a very reasonable price, that’s how I think about it.
Jenna Dagenhart: Yeah, these companies are growing like crazy, as you mentioned, but finally I have to ask, are you worried about regulation or any other risks?
JP Lee: Look, so regulatory risk and valuation risk are two of the ones that we identify when we’re talking about this fund, or this group of funds, that we have with clients. We’ve seen the valuation risk play out. The regulatory risk is interesting because it’s kind of country-specific. You see a company [sic], like China, they’ll come out, and they kicked all the miners out, and they essentially made it illegal to be dealing in digital assets and doing business there in digital assets. The United States today, it’s March 9, I have not gone through the whole deck, but [SEC Chair Gary] Gensler, they made an announcement. They made an announcement today, and it was supportive of the digital asset ecosystem. And I think in a lot of ways the United States is trying to become a leader for digital assets, and support and incubate that transformative growth and that transformative technology, which digital assets as a whole do represent.
JP Lee: So, regulatory risk is definitely front of mind. However, I think it’s important to take it into context. What country are we talking about? And is this country supportive of something that is innovative, like digital assets? And I think the United States is, and we see that come out today with that report from Gensler.
Jenna Dagenhart: Well, JP, great to have you. Thanks for joining us.
JP Lee: Yeah. Thanks, Jenna. Always nice to see you.
Jenna Dagenhart: And thank you for watching. Once again, I was joined by VanEck Product Manager JP Lee.
Important Disclosure
Please note that VanEck may offer investment products that invest in the asset class(es) or industries included in this video.
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. The information herein represents the opinion of the author(s), but not necessarily those of VanEck. 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 Digital Transformation ETF and Digital Assets Mining ETF will not invest in digital assets (including cryptocurrencies) (i) directly or (ii) indirectly through the use of digital asset derivatives. The Funds also will not invest in initial coin offerings. Therefore the Funds are not expected to track the price movement of any digital asset.
Investors in the Digital Transformation and the Digital Assets Mining ETFs should be willing to accept a high degree of volatility in the price of the Funds’ Shares and the possibility of significant losses. An investment in the Funds involves a substantial degree of risk. An investment in the Funds 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 Funds, each of which could significantly and adversely affect the value of an investment in the Funds.
An investment in the Digital Transformation and the Digital Assets Mining ETFs may be subject to risks which include, among others, risks related to investing in digital transformation companies, Canadian, Chinese and European issuers, equity securities, small- and medium-capitalization companies, information technology and financials sectors, foreign securities, market, operational, index tracking, authorized participant concentration, 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.
Digital asset miners and other hardware necessary for digital asset mining are subject to the risk of malfunction, technological obsolescence, the global supply chain issues and difficulty and cost in obtaining new hardware. Malfunctions and normal wear and tear will, at any point in time, cause a certain number of digital asset miners to be taken off-line for maintenance or repair. Any major digital asset miner malfunction could cause significant economic damage. The physical degradation of miners will require replacement of miners. Additionally, as technology evolves, there may be a need to acquire newer models of miners to remain competitive, which can be costly and may be in short supply. Given the long production period to manufacture and assemble digital asset miners and the current global semiconductor chip shortage, there can be no assurance that miners can acquire or maintain enough digital asset mining computers or replace parts on a cost-effective basis for efficient and profitable digital asset mining operations.
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.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck Associates Corporation.
© VanEck Associates Corporation
Van Eck Associates Corporation, Distributor666 Third Avenue, New York, NY 10017
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Be the first to comment