Ben Strack

<div id="highlights-block_6319cf930ce42" class="highlights">
 <ul>
 <li>Amplify Investments’ Transformational Data Sharing ETF (BLOK) is down roughly 50% year to date</li>
 <li>Though Defiance is bullish on crypto long-term, CEO says being short crypto firms will provide the best downside protection in the current environment</li>
 </ul>
 
</div>



ETF provider Defiance has launched a fund that bets against the blockchain industry by holding short positions in the largest blockchain ETF in the US.



As the industry grapples with the downturn in crypto and traditional markets, the Defiance Daily Short Digital Economy ETF (IBIT) seeks daily inverse returns of Amplify ETFs’ Transformational Data Sharing ETF (BLOK).



The fund group <a href="https://cms.blockworks.co/defiance-plans-etf-that-bets-against-crypto-industry/" target="_blank" rel="noreferrer noopener">had revealed plans</a> to launch IBIT in April.&nbsp;



The new fund enters short positions of the actively managed BLOK fund, which includes top holdings Core Scientific, Silvergate, Accenture, IBM and Overstock.com, as of Wednesday.



BLOK has returned about 26% since its inception in 2018, but the fund is down roughly 50% year to date and about 15% in the past month. The ETF has about $540 million in assets.



Though Defiance remains bullish on the growth of crypto over the next few years, CEO Sylvia Jablonski said in a statement, the executive pointed to the recent layoffs and revenue losses around the industry.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We believe shorting positions such as Coinbase, Galaxy and Robinhood, along with those involved in the metaverse — like Meta and Roblox — will provide the best downside protection in the current environment,” she added.</blockquote>



Coinbase is down about 73% year to date, while Galaxy Digital and Robinhood’s stock price has dropped roughly 70% and 47%, respectively, so far in 2022.



When the Federal Reserve stops hiking interest rates and inflation starts to wane, investors are likely to dip their toes back into crypto, Jablonski told Blockworks.



“Investors are taught to have well diversified portfolios, a barbell approach, or hedges for tough times,” she said in an email. “Having a product available to cover the crypto space in this same spirit could be very advantageous to traders and investors alike.”



Defiance has seven ETFs trading in the US with roughly $1.2 billion in combined assets, according to ETF.com. Its largest is its Next Gen Connectivity ETF (FIVG), which has gathered nearly $1 billion in assets since its March 2019 launch.



The firm in December launched the <a href="https://www.defianceetfs.com/nftz/" target="_blank" rel="noreferrer noopener">Defiance Digital Revolution ETF</a> (NFTZ), which invests in companies with exposure to NFTs, blockchain and cryptocurrency. Like BLOK, NFTZ has Silvergate as a top-five holding, alongside Marathon Digital, Draftkings, Cloudflare and Robinhood.&nbsp;



NFTZ, which has gathered just $6 million in assets during its time on the market, is down about 63% so far this year.



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Defiance Debuts ETF To Short Blockchain Companies

<div id="highlights-block_6262f60d59082" class="highlights">
 <ul>
 <li>BLOK, which launched in 2018, declined by roughly 15% during the first three months of 2022</li>
 <li>Defiance in December launched an ETF investing in NFT marketplaces and issuers</li>
 </ul>
 
</div>



Defiance ETFs is seeking to launch a fund betting against the US’s first blockchain ETF.



The fund group’s proposed Short Blockchain and Digital Assets Industry ETF seeks returns that represent the daily inverse of the performance of Amplify ETFs’ Transformational Data Sharing ETF (BLOK), according to a Thursday <a href="https://www.sec.gov/Archives/edgar/data/1540305/000089418922002788/a485a.htm" target="_blank" rel="noreferrer noopener">regulatory disclosure</a>.



The proposed ETF will enter into short positions of the Amplify ETF as well as swap agreements with major global financial institutions. It seeks to achieve its investment objective only for the period of a single trading day and is not intended to be used by investors who do not actively monitor and manage their portfolios, according to the filing.



The disclosure does not indicate a ticker or expense ratio for the planned offering.



Defiance did not immediately return a request for comment.&nbsp;



BLOK, which launched in January 2018, has roughly $900 million in assets under management. Though the fund’s holdings were previously limited to several mining and semiconductor companies, as well as companies investing in private blockchain stakes, Amplify CEO Christian Magoon <a href="https://cms.blockworks.co/amplify-etfs-ceo-you-want-to-own-bitcoin-amid-inflation/" target="_blank" rel="noreferrer noopener">previously told Blockworks</a>, it now consists of more pure-play blockchain companies.



The fund’s current top five holdings are Silvergate, CME Group, SBI Holdings, MicroStrategy and Nvidia. Other constituents among the top 10 include Galaxy Digital and crypto exchange Coinbase.



Though BLOK has returned 105% since inception, the fund returned roughly -15% during the first three months of 2022, according to Amplify’s website.



A spokesperson for Amplify declined to comment on the proposed Defiance fund.



Defiance is not the first aiming to launch a product betting against the crypto industry.



Toroso <a href="https://cms.blockworks.co/toroso-investments-proposes-leveraged-inverse-etfs-based-on-blok/" target="_blank" rel="noreferrer noopener">revealed plans last September</a> to bring to market the Elevate Shares Inverse Daily Blockchain ETF (KOLB), which would also seek daily results corresponding to the opposite of the performance of BLOK.



ProShares <a href="https://cms.blockworks.co/proshares-plans-etf-mutual-fund-betting-against-bitcoin/" target="_blank" rel="noreferrer noopener">filed earlier this month</a> to launch an ETF that would allow investors to essentially bet against bitcoin, and AXS Investments and Direxion <a href="https://cms.blockworks.co/issuers-race-to-launch-a-short-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">followed suit</a>.



Defiance has eight ETFs trading in the US with combined assets of about $1.4 billion. The firm in December <a href="https://cms.blockworks.co/new-planned-etf-targets-nft-related-stocks/" target="_blank" rel="noreferrer noopener">launched</a> its Digital Revolution ETF (NFTZ), which invests in NFT marketplaces and issuers.



Sylvia Jablonski, Defiance’s co-founder and chief investment officer, <a href="https://cms.blockworks.co/defiance-co-founder-nfts-will-be-bigger-than-the-internet/" target="_blank" rel="noreferrer noopener">previously told Blockworks</a> that NFTs will be bigger than the internet.



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Defiance Plans ETF That Bets Against Crypto Industry

<div id="highlights-block_61a902a23e70c" class="highlights">
 <ul>
 <li>The Defiance Digital Revolution ETF (NFTZ) trades on the New York Stock Exchange and has an expense ratio of 65 basis points</li>
 <li>New fund joins a crowding field of crypto- and blockchain-related equity offerings in the US as issuers await approval of spot bitcoin ETFs</li>
 </ul>
 
</div>



Defiance ETFs has added to the growing list of blockchain-related equity offerings that do not invest in crypto assets directly, though the firm intends for the fund to focus on NFTs a bit more than its competitors.



<a href="https://www.defianceetfs.com/NFTZ/" target="_blank" rel="noreferrer noopener">The Defiance Digital Revolution ETF (NFTZ)</a> launched on Thursday and trades on the New York Stock Exchange. The new product, which has an expense ratio of 65 basis points, offers investors exposure to the NFT, blockchain and cryptocurrency ecosystems by investing in NFT marketplaces and issuers.&nbsp;



NFTZ tracks the BITA NFT and Blockchain Select Index, which consists of the stock of companies that are building a platform or developing technology to use NFTs, trading platforms, mining or banking services in the crypto space, as well as blockchain-related technology. It may also include businesses that intend to become involved in these spaces.



The fund’s top five holdings are Silvergate, Cloudflare, Northern Data, Bitfarms and Playboy owner PLBY Group. The latter company unveiled an NFT collection — <a href="https://playboyrabbitars.com" target="_blank" rel="noreferrer noopener">Playboy Rabbitars</a> — in October.&nbsp;



Defiance currently has eight other ETFs trading in the US with combined assets of nearly $1.7 billion, according to ETF.com. Its largest is the $1.3 billion Defiance Next Gen Connectivity ETF (FIVG), which it launched in March 2019.



<h2 class="wp-block-heading">‘Bigger than the internet’</h2>



Sylvia Jablonski, Defiance’s co-founder and chief investment officer, told Blockworks that NFTs will be bigger than the internet.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“NFTs are special; they have created this cultural revolution,” she said. “They are the key to everything that is or will be the metaverse, [and] digital tokens will represent land ownership in the metaverse.”</blockquote>



NFTs reward creators of content, art and data and allow buyers to participate in a particular project, Jablonski explained. These tokens will represent fashion houses like Gucci and Nike, she noted, as well as tickets to events in the real world and metaverse.&nbsp;



Investors of stocks benefit when those stocks go up, and the company benefits in that they can use the funds it raises to take measures to boost the value of the stock, the CIO added.&nbsp;



“With NFTs, the value and direction of the asset is determined both by the creator and the investor,” Jablonski said. “People like to participate in something, and I think that special aspect is what will make this space essentially grow to be huge.”



<h3 class="wp-block-heading">Just another blockchain ETF?</h3>



NFTZ adds to the growing list of crypto or blockchain-related equity ETFs in the US as regulators <a href="https://cms.blockworks.co/when-will-the-sec-approve-a-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">have not yet approved ETFs</a> that would invest in bitcoin and other crypto assets directly.&nbsp;



The largest crypto equity ETF in the US is Amplify Investments’ Transformational Data Sharing ETF (BLOK) which has grown to nearly $1.7 billion in assets under management since its January 2018 launch. 



A handful of similar products have launched this year, including the $130 million Bitwise Crypto Industry Innovators ETF (BITQ), the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT), the Volt Crypto Industry Revolution and Tech ETF (BTCR) and the Invesco Alerian Galaxy Crypto Economy ETF (SATO).&nbsp;



The key difference of NFTZ to its competitors is that Defiance invests in stocks specifically involved in the issuance, creation and commercialization of NFTs, Jablonski said.



While some of the competing offerings are actively managed, the Defiance co-founder added that providing transparency for the investor is a main goal of the firm.



“We feel our investors should see what we hold, when and how we select holdings based on index rules,” she said. “It also helps keep efficient markets so that clients and market makers are able to trade or hedge with full transparency.”



Nathan Geraci, president of The ETF Store, said that due to the lack of pure-play companies offering exposure to the crypto space, a lot of the ETFs in the segment end up looking similar.



“Given the limited investment universe,” he told Blockworks, “I think NFTZ will have a difficult time differentiating itself from other blockchain ETFs at this early juncture.”



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