How To Play China's Blockchain Boom

All of the exchange-traded funds dedicated to stocks with blockchain exposure have come to market this year. Nearly all of those funds are heavily or exclusively focused on U.S. equities.

The exception is the Reality Shares Nasdaq NexGen Economy China ETF BCNA, which debuted in June.

What Happened

BCNA, the second blockchain ETF in the Reality Shares stable, targets the Reality Shares Nasdaq Blockchain China Index.

That index “is designed to measure the returns of companies in China that are committing material resources to developing, researching, supporting, innovating or utilizing blockchain technology for their use or for use by others,” according to the issuer.

BCNA is comprised exclusively of companies listed in Hong Kong or mainland China, also known as A-shares. The ETF holds 31 stocks.

Why It's Important

Bolstering the thesis for BCNA is China's potentially massive blockchain opportunity, one that extends beyond cryptocurrency.

“China has become the number one global filer of blockchain patents in the past year, with nearly two and a half times the next competitor (the U.S.) and a total of 225 patents,” said Reality Shares CEO Eric Ervin in a recent note. “Its government has added blockchain technology to its five-year plan and, in June 2018, touted the value of blockchain as '10 times that of the Internet' on CCTV, its national news network. With seemingly the government’s full support behind blockchain, and the high number of blockchain patents, an upcoming blockchain boom may now be in sight.”

Importantly, China's blockchain industry is largely immune from the country's trade war with the U.S. and the tariffs the U.S. has levied against China.

“And while China has most recently been the target of new tariffs imposed by the United States, blockchain technology itself is likely to escape with a minimal negative impact – most blockchain applications are currently concentrated in technology and finance, and these sectors have been largely spared from the trade war thus far,” said Ervin.

What's Next

Many blockchain strategies are heavily allocated to technology stocks. That's true of BCNA, but the ETF features exposure to four sectors with weights ranging from 12.6 percent (industrials) to 42.3 percent (technology).

Baidu Inc. BIDU and Alibaba Group Holding Ltd. BABA are among BCNA's top 10 holdings.

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