- It’s been an outstanding year for cryptocurrencies but a rough stretch for the stocks tied to them.
- VanEck’s crypto-focused ETF has underperformed since its April launch but may bounce back in 2022.
- The firm’s director of digital assets research shared five crypto stocks to watch in the new year.
It’s an age-old investing dilemma: When risk assets tumble, is it better to bail or double down?
A precipitous decline for cryptocurrencies, and the stocks tied to them, puts that choice in stark relief. Bitcoin (BTC) has tumbled 31% since hitting its all-time high of around $69,000 in early November, as has ethereum (ETH), which down roughly 23% from its November 8 peak.
But even those steep declines pale in comparison to the 40% loss that the VanEck Digital Transformation ETF (DAPP)’s has dealt with over the past five weeks. The exchange-traded fund tracks stocks like crypto exchange giant Coinbase (COIN) and crypto miners like Riot Blockchain (RIOT), which, unsurprisingly, are down 32% and 48%, respectively, from recent highs.
Despite its recent struggles, the bull case for the fund is simple, JP Lee, VanEck’s ETF product manager, told Insider: It provides diversification for crypto skeptics and fanatics alike.
It’s been impossible to ignore the outstanding performance of cryptocurrencies in 2021. Bitcoin and ether are still up 61% and 405%, respectively, year to date, even after their recent drops.
Many investors are increasingly interested in cryptocurrencies, but either can’t or don’t want to directly own the digital tokens. Most brokerages currently don’t allow clients to trade cryptos, and transferring one’s money to another platform can be a headache. Plus, some financial advisors are barred from investing in the space because of its
DAPP allows those on the fence about crypto to gain exposure to the burgeoning asset class while enabling believers to expand their portfolios and potentially reduce their risk profile. Owning cryptos and crypto stocks shouldn’t be mutually exclusive, Lee said.
“We view them as different investment opportunities — the same way that we view gold and gold miners as two separate and distinct things,” Lee said. “Sure, they probably fit together in some kind of strategy, but they’re not the same thing. So it’s a way to participate without diving in and buying bitcoin.”
Since its mid-April inception, DAPP has taken investors on a rollercoaster ride. The ETF has logged double-digit percentage gains or losses in a five-day span 16 times in the past nine months and has a beta of 2.21, meaning it’s more than twice as volatile as the S&P 500.
Poor timing is more to blame for the disappointing performance than a broken story, Lee said. The ETF product manager acknowledges that the fund launched at the worst possible time: the day before bitcoin hit its previous peak of just over $63,000. Lee said the euphoria led to over-extended valuations, which only hurt the ETF as the price of the cryptocurrency fell over the next six months.
“It’s definitely been an unfavorable first year for the ETF by performance,” Lee said. “But where we are now is that valuations, I think, by a price-to-earnings or a price-to-sales ratio, are very compelling. These companies, even though their stock prices haven’t done great, they’re still growing like crazy, they still have very strong user bases.”
Continued crypto adoption among both big and small investors gives Lee confidence that 2022 could be a bounce-back year for the DAPP ETF. Growth names have fallen out of favor on Wall Street in recent sessions, but Lee said crypto stocks can mount a turnaround anyway.
Five crypto stocks to watch in 2022
Lee’s colleague and VanEck’s director of digital assets research, Matthew Sigel, listed five under-the-radar crypto-focused stocks to watch heading into 2022. In August, Lee made the case for five leading crypto stocks and recently said each company’s bull thesis is still intact.
Below are the five new recommendations from Sigel, along with the ticker, market capitalization, and thesis for each. Note that the final listing isn’t in the DAPP ETF.