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Blockchain Offers Burgeoning Opportunities For Investors As It Evolves At Remarkable Pace, New Invesco Report Concludes

Date 01/02/2021

The blockchain industry has evolved at a remarkable pace over the past 18 months, creating burgeoning opportunities for investors. This is according to an independently written report undertaken by Keith Bear and Michel Rauchs (Fellow and Research Affiliate respectively at Cambridge Judge Business School’s Centre for Alternative Finance) and recently published by Invesco.

 

 

Organisations have begun commercialising enterprise blockchain networks across multiple sectors such as insurance, banking, trade financing and shipping, and in many cases have now achieved scale. A number of new permissionless blockchain networks have recently launched to address enterprise applications, and there is increasing cross-over between permissionless and permissioned tracks.

The Ethereum network, for instance, has established itself as the undisputed market leader for smart contract applications thanks to widely used token standards and readily available software tooling that facilitates application development on top of the network. Competition is fierce, however; a number of well-funded networks have gone live more recently to challenge Ethereum’s position.

The report, entitled Hyper Real: An Overview of Global Blockchain Industry Trends, looks in detail at industry developments and key trends that are shaping blockchain’s long-term trajectory. These include:

  • Commercial blockchain networks have now been established across multiple sectors. Over 50% of the world’s total container traffic has now been committed to run on blockchain, for instance;
  • While the popular focus is on cryptocurrencies, other assets are growing fast. These include digital fiat currencies, digital securities that are modernising capital markets, and a broader tokenisation of existing physical assets;
  • Stablecoins have generated more than $1.2 trillion in transactional volume since 2017. This year should see both the appearance of Facebook’s Diem stablecoin and broader central bank digital currency (CBDC) pilots in Shenzhen and three other cities in China.

In terms of looking ahead at what will be key market developments in 2021 and beyond, the report forecasts that M&A activity in the sector will accelerate. Activity picked up in 2020, with further consolidation expected primarily in the exchange and custody segments. Acquisitions by Broadridge and ConsenSys indicate a similar trajectory in the Enterprise Blockchain market segment.

In addition, after years of taking the centre stage, blockchain will increasingly be relegated behind the scenes as the focus shifts to user experience and commercial considerations. Blockchain components will quietly be integrated into the traditional enterprise IT stack, abstracting away the underlying complexity from end users who are unaware of what is going on in the back end.

Keith Bear, Fellow at Cambridge Judge Business School’s Centre for Alternative Finance said: “The crescendo of activity on central bank digital currency, stablecoins and tokenised assets points to major new means of facilitating trade, payments and investments in the evolving digital economy. What has largely been a retail-driven market is now becoming more institutional, as ‘unicorns’ and start-ups, brokerages, custodians, institutional trading platforms and global banks build a range of digital asset products and services. Decentralised and enterprise blockchain applications are also on the rise, supported by the growth of extensive software libraries and developer tooling.”

Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco said: “The challenge facing any investor who wants to gain exposure to the blockchain theme is how to do it effectively. There’s not a ‘blockchain sector’ in which to invest. Instead, companies generating revenues from the technology – or with the potential to do so – are spread across multiple industries and range from start-ups to huge conglomerates. They are often not obvious. We launched the Invesco Elwood Global Blockchain UCITS ETF to provide investors with diversified exposure to an index constructed by experts in digital assets.”  

The first and largest ETF in Europe investing in the blockchain theme, the Invesco Elwood Global Blockchain UCITS ETF was launched in March 2019 and now has US$ 417 million of assets under management as at 31 December 2020. The ETF returned 92.6% in 2020 and 124.4% since inception to the end of the year2, substantially ahead of global equity markets.

https://digital.invesco.com/BlockchainResearch

2 Source: Bloomberg, 12-month returns to 31 December 2020, in USD ETF inception date: 8 March 2019. Past performance is not a reliable indicator of future returns.

 

 

 

Key investment risks

 

Value fluctuation – The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

As this fund has significant exposure to one or a small number of sectors, investors should be prepared to accept a higher degree of risk than for an ETF with a broader investment mandate.

The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults.

 

 

The value of equities and equity-related securities can be affected by a number of factors including the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the Fund.