The VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP) delivered the best annual performance ever seen by an ETF in 2023, surging 270%, as blockchain and crypto mining stocks benefited from a favorable macroeconomic environment.
DAPP, which invests in 20 companies that are involved in the digital assets industry, such as Block, Coinbase, Bitfarms, Riot Blockchain, and Hut 8 Mining Corp, was aided by the Federal Reserve’s decision to pause its interest rate hikes in the second half of 2023, after raising them four times in the first half.
This eased the pressure on the small-cap blockchain and crypto mining stocks, which rely heavily on debt financing to fund their growth and innovation. The Fed’s dovish stance also supported the demand for cryptocurrencies, which are seen as a hedge against inflation and currency devaluation.
This is definitely a record. Clean energy and Turkey ETFs had good years recently too, but we have not seen anything like this before, said Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence.
DAPP ETF Outperforms Other Markets
DAPP’s stellar performance in 2023 contrasted sharply with its dismal performance in 2022, when it plunged -84% amid a global tightening cycle that hurt risk assets and cryptocurrencies. DAPP also outperformed other markets in 2023, such as Turkey, which saw its iShares MSCI Turkey UCITS ETF (ITKY) jump 112%, and clean energy, which saw its iShares Global Clean Energy UCITS ETF (INRG) rise 134%.
ITKY benefited from Turkey’s unconventional monetary policy, which saw President Recep Erdogan slash interest rates from 19% in September 2021 to 9% in November 2022 despite soaring inflation and a collapsing currency. This boosted consumer spending and the stock market and raised concerns about the country’s economic stability and credibility.
INRG gained from the US election of President Joe Biden, who pledged to invest in renewable energy sources and combat climate change. Investors poured $157m into the ETF in the last quarter of 2020 as Biden secured his victory over Trump. The ETF also received a boost from the American Jobs Plan and Inflation Reduction Act, which allocated $470 billion of tax credits to roll out renewable energy utilities and energy storage in the US.
DAPP ETF Faces Uncertainty In 2024
Looking ahead, DAPP faces some uncertainty in 2024, as the Fed is expected to cut interest rates three times next year, according to Bloomberg, in response to the declining inflation and slowing growth in the US. This could have a mixed impact on the blockchain and crypto mining stocks, as lower interest rates could ease their debt burden and reduce the appeal of cryptocurrencies as an alternative asset.
Moreover, DAPP could face regulatory and competitive challenges, as the US Securities and Exchange Commission (SEC) recently approved the first physical bitcoin ETF in the US, which could attract more investors to the crypto space. Additionally, DAPP could face competition from other crypto and blockchain ETFs in Europe, such as the Jacobi Bitcoin ETF (BCOIN).
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