Should You Invest in the Global X Blockchain ETF?

The driving technology behind cryptocurrencies is what creates the inherent value of each digital token. By establishing a robust blockchain, a cryptocurrency can boost utilization and, in turn, value.

What’s a blockchain?

Before you throw all of your life savings into the Global X Blockchain ETF, it’s best to understand just what a blockchain is. Blockchain technology was created to reduce the risk of fraud, corruption, or data manipulation by a central authority, like a bank or government. By decentralizing how the data is stored, it’s nearly impossible for the information to be manipulated. Storing and maintaining records on an open ledger solves this issue.

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In a blockchain, a network of independent computers is linked by a shared database and operates on the same software system. Once new information becomes available, it’s recorded in the open ledger as a block of data. Everyone has access to an identical record.

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Blockchains aren’t just for facilitating cryptocurrencies. Companies like General Electric (GE), Microsoft (MSFT), PayPal (PYPL), Starbucks (SBUX), Salesforce (CRM), and IBM (IBM) employ blockchains to ensure quality control and bolster cybersecurity.

What’s a blockchain ETF?

Traditional ETFs allow investors to gain diversification in various indexes and even market sectors, such as autonomous vehicles, cloud computing, and artificial intelligence. Blockchain ETFs work in the same way, except the sector is of companies with direct exposure to blockchains or entities that stand to benefit from blockchain and cryptocurrency proliferation.

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In a passively managed blockchain ETF, a fund manager buys a basket of blockchain-related stocks within a broad index. In turn, investors in the ETF gain exposure to the entire blockchain index. By exposing the fund to the entire index, fund managers don’t need to select individual companies.

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In contrast, actively invested blockchain ETFs rely on a fund manager’s ability to pick securities and provide above-average returns. As a result, these investments often come with higher fees and greater volatility.