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Amid a growing interest in NFTs and a soaring market, Defiance ETFs recently launched The Defiance Digital Revolution ETF (“NFTZ”), the first NFT-focused exchange traded fund.
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Trading in NFTs climbed to $10.7 billion in the third quarter of 2021, an increase of more than 700% from the previous quarter, according to a report by blockchain analytics firm DappRadar.
Sylvia Jablonski, CIO and co-founder at Defiance ETFs, told GOBankingRates that the company launched the fund as NFTs are “challenging paradigms of ownership, property and value.”
“They are releasing creativity into the virtual world as a cooperative venture between creators and inventors,” she said. The virtual sky is the limit for NFTs, and we wanted to provide investors with access to the theme in a simple and transparent way.”
Jablonski explained that an investor can buy or create an NFT direct — similar to Bitcoin — with digital wallets, crypto and such, but this takes some expertise and level of technical understanding. “Buying an ETF in a trading account is a very seamless process for most investors. So having one with access to the digital world of blockchain technology and NFTs is a great addition to the crypto-related marketplace,” she continued. “NFTs are taking over the universe. Who would have thought that [Beeple’s] “The First 5,000 Days” would have sold for $70 million this year. We’ve seen weeks of NFT trading surpassing equity trading on various platforms.”
With the build out of the metaverse poised to be a multi trillion-dollar opportunity, comes a parallel investment opportunity with NFTs, she said. Indeed, metaverse virtual real estate, for example — a new big winner in the crypto world, as GOBankingRates previously reported — recorded more than $100 million in NFT land sales in a week in early December, according to DappRadar data.
In general, NFTs are a massive opportunity, because they represent a cultural revolution. They are a store of digital value on a blockchain. That sounds like crypto, but it is unique in that NFTs are the first asset class stored digitally that can represent a physical asset, a moment in time, a piece of art, a song, a photograph, Jablonski explained.
“They create this circular economy where both creators and investors can determine the future of an artwork — this is the evolution of the internet. It’s part of Web 3.0. Web2 was social media and sharing economy, now Web3 is blockchain technology,” she said.
She added that as NFT activity takes place on the Ethereum marketplace, you can program commerce on it, “so the term starving artists hopefully doesn’t exist.”
“The artist can build a lifelong royalty on his or her art and cut out the middle man. It is also participatory,” she added. “There are groups and chats and people taking pride in a project, determining its future path and outcome, it’s a circular economy.”
While investors can buy NFTs, trade them or enjoy the benefits they bring — unlocking an experience, for example — investors who might want an “easier” approach can gain exposure through an ETF.
The fund seeks to track total return performance of the BITA NFT and Blockchain Select Index, which include equity securities of global publicly listed companies with relevant thematic exposure to the NFT, blockchain and cryptocurrency ecosystems, according to the fund’s prospectus.
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“NFTZ is testament to our vision of the revolutionary potential for growth in crypto and digital asset related securities, and our commitment to offering exposure to the dynamic and disruptive NFT space. NFTZ seeks to track an index of a portfolio of publicly listed companies with relevant thematic exposure to the NFT, blockchain and cryptocurrency ecosystems,” the fund’s prospectus stated.
There are two eligibility routes for inclusion in the fund. First, a thematic revenue exposure — companies who derive revenue from Crypto Asset Management & Trading; Crypto Banking, Payments and Services; Crypto Mining; Crypto Mining Hardware; or Blockchain Technology. In addition, NFTs — companies who disclose that they offer services for the issuance, creation and commercialization of NFTs; or Companies involved in investment or funding in internal and external projects targeting the issuance, creation and commercialization of NFTs.
Top holdings include Silvergate, Playboy Group and Cloudfare.
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