Digital Asset ETFs Are the Top Underperformers of the Fund World

Fredrik Vold
Last updated: | 2 min read
Source: Bloomberg

Exchange-traded funds (ETFs) that track digital assets and companies in the space have become the top underperformers of the fund world this year, as crypto prices have fallen significantly from their peak late last year.

According to data compiled by Bloomberg, the three worst-performing non-leveraged ETFs listed in the US this year were all crypto-related funds. The top spot on the list of the worst ETFs was held by Viridi Bitcoin Miners ETF (RIGZ), which has fallen 69% this year. 

The fund was followed by Global X Blockchain ETF (BKCH) and VanEck Digital Transformation ETF (DAPP), which have both seen year-to-date losses of 68%.

Over the same time period, the spot price of bitcoin (BTC) has fallen about 58%.

Year-to-date bitcoin price. Source: CoinGecko

Besides the three crypto funds, ETFs from sectors such as ocean shipping also plunged after a strong year in 2021, Bloomberg said.

The heavy losses for crypto-themed ETFs have come as the Federal Reserve (Fed) has tightened monetary policy and increased interest rates in an effort to tame soaring inflation in the US. 

The situation has, in other words, been the opposite of last year, when the Fed eased monetary policy and resorted to massive “money printing” to keep the economy afloat during Covid lockdowns.

“These areas were clearly prime beneficiaries of plentiful monetary and fiscal stimulus. Now, dry bulk freight futures and crypto are both suffering from the same malady – a highly aggressive Fed,” Nate Geraci, president of financial advisory firm The ETF Store, commented in the article.

“The easy money party is over and both of these areas are now in the midst of brutal drawdowns,” he added.

Inflation higher than expected – more pain ahead?

Although crypto funds have already seen the sharpest losses of all sectors, more pain could still be ahead. The first sign of this came this past Tuesday, when US inflation data revealed that inflation in August had been slightly higher than expected, coming in at 8.3%.

The fear among market players now is that the Fed will respond to the higher-than-expected inflation by raising rates by 100 basis points at its next meeting, something the Fed hasn’t done since 1984.

According to the derivatives exchange CME’s FedWatch Tool, the likelihood of a 100-basis point hike now stands at 20%, while there is an 80% chance the Fed will hike by 75 basis points.

Source: CME FedWatch Tool