Digital asset mining companies represent a unique investment opportunity as valuations continue to rise due to price appreciation of listed securities and new listings.
Applications, technology and use cases for digital assets have exploded in recent years, supported by both retailers and institutions. Digital asset miners have become a crucial part of this burgeoning ecosystem and play a vital role in validating and processing blockchain transactions. Miners now represent the largest group of businesses within the broader digital asset ecosystem and have seen their valuations rise significantly in recent years. The VanEck Digital Assets Mining ETF (CONTAIN) provides exposure to companies participating in the digital asset mining ecosystem.
Digital Asset Mining is Essential to Blockchain Technology
Mining is the process by which new units of cryptocurrency are created. Miners use specialized computer chips in conjunction with software to solve complex mathematical problems. To solve these problems, the transactions that exist in the current block are verified by multiple participants. As issues are resolved, miners are rewarded with newly issued cryptocurrency. Of the publicly traded digital asset mining companies in the investment universe, the vast majority are primarily focused on Bitcoin mining.
Mining cryptocurrencies: from transaction to reward
Digital asset miners represent the largest segment of digital asset businesses
Digital asset mining companies represent the largest weighting in the MVIS Global Digital Assets Equity Index, which represents all digital asset opportunities. The universe of digital asset companies includes a number of different types of businesses, ranging from miners to stock exchanges to banking companies. Over time, we expect more digital asset mining companies to become publicly traded companies and that the valuation of miners as a group will also continue to grow.
Crypto miners on the rise
Source: MVIS, VanEck as of 12/31/21. Weightings reflect the percentage of the MVIS Global Digital Assets Equity Index with primary exposure to a specific industry sector. Industry sectors are defined and evaluated by the index provider and VanEck.
Valuations of digital asset miners have shown strong growth in recent years
As the ecosystem and adoption of digital assets has grown, so have the ratings of digital asset miners. As a group, valuations for crypto miners rose primarily from two main sources: price appreciation of listed securities and new listings. Going forward, we expect the size of the digital asset mining market to increase as more companies enter the market and the adoption of digital assets increases.
Market capitalization of publicly traded digital asset mining companies (31/12/2018 – 28/02/2022)
Access the opportunity
Take into account VanEck Digital Assets Mining ETF (NASDAQ: DAM) when positioning your portfolio to include digital asset mining companies:
- Digital asset miners secure, record and store data on the blockchain
- The industry supported by current strong demand for digital assets
- High-growth integral segment of the digital asset economy
MVIS Global Digital Assets Equity Index: intends to follow the largest and most liquid companies in the digital asset segment.
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Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, speak as of the date of this communication and are subject to change without notice. Information provided by third party sources is believed to be reliable and has not been independently verified as to its accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data.
The Fund will not invest in digital assets (including cryptocurrencies) (i) directly or (ii) indirectly through the use of digital asset derivatives. The Fund will also not invest in initial coin offerings. Therefore, the Fund is not expected to follow the price movement of a digital asset.
Investors in the Fund should be prepared to accept a high degree of volatility in the price of Shares in the Fund and the possibility of significant losses. An investment in the Fund involves a substantial degree of risk. An investment in the Fund is not a deposit with any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Accordingly, you should carefully consider the various risks before investing in the Fund, each of which may materially and adversely affect the value of an investment in the Fund.
An investment in the Fund may be subject to risks which include, but are not limited to, the risks of investing in digital transformation companies, investing in equity securities, Canadian issuers, small and mid-cap, information technology and financial sectors, foreign securities, market, operational, index tracking, concentration of authorized participants, new fund, absence of a prior active market, trading problems, passive management, trading in shares of funds, premium/discount and liquidity of fund units, non-diversified and concentration risks which can make these investments whose price is volatile or difficult to trade. Small and mid capitalization companies can be exposed to high risks.
Technology relating to digital assets, including blockchain, is new and in development 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 technology within their business or by leveraging business sectors involved in the operation of technology. The cryptographic keys necessary for the transaction of a digital asset may be subject to theft, loss or destruction, which could harm the business or operations of a company if it depended on the digital asset. There may be risks posed by the lack of regulation of digital assets and any future regulatory developments could affect the viability and expansion of the use of digital assets.
Investing involves substantial risks and high volatility, including possible loss of capital. An investor should carefully consider the Fund’s investment objective, risks, charges and expenses before investing. For a prospectus and prospectus summary containing this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and simplified prospectus carefully before investing.
Cryptocurrency is a digital representation of value that functions as a medium of exchange, unit of account, or store of value, but it is not legal tender. Cryptocurrencies are sometimes exchanged for US dollars or other currencies around the world, but they are generally not backed or backed by any government or central bank. Their value is entirely derived from market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency can be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which can lead to the possibility of permanent and total loss of value of a cryptocurrency. particular currency if the market for that cryptocurrency were to disappear. Cryptocurrencies are not covered by the FDIC or the SIPC.
Investing in cryptocurrencies involves a number of risks, including volatile market price fluctuations or flash crashes, market manipulation, and cybersecurity risks. Additionally, cryptocurrency markets and exchanges are not regulated with the same controls or client protections available in stock, options, futures, or currency investments. There is no guarantee that someone who accepts cryptocurrency as payment today will continue to do so in the future.
The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical or difficult to understand or evaluate. Cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using sufficient computing power to overwhelm the normal operation of the cryptocurrency’s blockchain or other technology under -lying. Certain cryptocurrency transactions will be deemed to have occurred when recorded on a public ledger, which is not necessarily the date or time at which a transaction may have been initiated.
- Investors must have the financial capacity, sophistication and willingness to bear the risks of an investment and a potential total loss of their entire cryptocurrency investment.
- An investment in cryptocurrency is not suitable or desirable for all investors.
- The cryptocurrency has a limited operating history or performance.
- The fees and expenses associated with investing in cryptocurrency can be significant.
There may be risks posed by the lack of regulation of cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should do thorough research before investing in cryptocurrencies. Past performance is not indicative of future results.
The information provided by Van Eck is not intended to be, and should not be construed as, financial, tax or legal advice. This is not a recommendation to buy or sell an interest in cryptocurrencies.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.