Global X Blockchain ETF: Declining With No Respite (NASDAQ: BKCH)

Introduction

Remember when inflation was basically temporary and the US Federal Reserve kept interest rates close to zero for several quarters in a row? What relatively calm times those were. And what glorious times they were for crypto and blockchain related stocks.

But now, as governments around the world have embraced aggressive rate hikes, the crypto market has crashed. Bitcoin (BTC-USD) itself is down 76% from all-time highs.

In this article, I share my outlook for the Global Xs Blockchain ETF (NASDAQ:BKCH):

BKCH ETF Composition

BKCH’s top five holdings include Block Inc. ( SQ ), Coinbase Global ( COIN ), Riot Blockchain ( RIOT ), Applied Digital Corp. (APLD) and Marathon Digital (MARA). Overall, these top 5 holdings account for 51.2% of total exposure. This indicates a somewhat moderately high concentration.

Here is a discussion of some of the basic drivers of BKCH:

The Bitcoin indicator

Although the cryptocurrency and blockchain industry has many moving parts and fundamental drivers, Bitcoin (BTC-USD) is undoubtedly the single most important factor. If Bitcoin smiles, the market bursts into laughter, and if Bitcoin frowns, pain envelops the market.

That said, Bitcoin is currently trading at painful lows, dragging the entire market into a crypto winter and BKCH at all-time lows.

My view on Bitcoin has been bearish since November 2021. I have publicly stated caution signals on Twitter about a local top formation. It has so far played beautifully according to expectations:

I expect prices to continue to drop to monthly support close to $12,000.

Market confidence in the abyss

Apart from the high interest rate climate that is confusing the crypto and blockchain markets, the series of unfortunate explosions, layoffs and bankruptcies seen by crypto companies this year has made a notable dent in investor confidence levels. This can take a long time to recover, which is typical bubble pop recoveries.

There are also signs of weakness internally. For example, Coinbase (COIN), a crypto exchange that occupies the second place in the BKCH portfolio with a weight of 10.1%, has laid off 1,160 employees in the current crypto winter.

Other companies such as Core Scientific (CORZ), in which BKCH has a 3.8% weighting, recently filed for Chapter 11 bankruptcy protection, with shares down 98%. The post-bankruptcy vultures are also likely watching Michael Saylor’s Marathon Digital Holdings (MARA) with great interest.

Risk-Off sentiment remains a headwind for BKCH

The hikes in interest rates by the US Federal Reserve and other governments have triggered a general risk-off sentiment across financial markets, causing investors to turn from adventurous and optimistic to cautious and pessimistic. The crypto and blockchain markets are associated with high speculative activities, which are associated with investors being adventurous and taking risks. Thus, today’s market sentiment is a direct hit on BKCH’s prospects.

The Fed’s interest rate decisions will set the tone for this risk-on or risk-off sentiment, which will affect whether BKCH will swim with or against the tide.

Now let’s look at the technicalities of BKCH:

If this is your first time reading a Hunting Alpha article using technical analysis, you may want to read this post, which explains how and why I read the charts the way I do, using the principles of flow, placement and trap.

Read about relative cash flow

The BKCH/SPX500 pair is in a literal free fall at the moment, with no support for the pair to target. While the signs are overwhelmingly bearish, the instrument has yet to meet all of my trade setup criteria. Specifically, I need to see a bull trap to get into the bearish plays. There is no evidence of that yet.

Read about Absolute Money Flow

On the stand-alone BKCH ETF, it’s a similar story. BKCH is floating around $12.80 and is in price discovery mode, creating a decent opening for a sell. However, the price is not in the ideal place for bulls at the moment to call for a sell position.

If I see a retracement to $30.58 monthly resistance followed by a false breakout to the upside, then I would be much more interested in being bearish. Until then, I have a “hold” attitude.

Summary

Overall, I recognize that the sitting current on BKCH is convincingly bearish. But to join the sales, I need to see a bull trap, and so I continue to wait for the high probability listings (>70% chance based on my stats). Meanwhile, keep in mind that a reversal in the crypto market means an immediate reversal in the BKCH ETF, given the tight correlation shared. And a turnaround in the crypto market in turn (excuse the pun) will follow the drumbeat of central bank policy, making it a watchable key.

Editor’s Note: This article covers one or more microcap stocks. Be aware of the risks associated with these stocks.