ETF Expert Corner

Amplify ETFs Founder Christian Magoon Spotlights Blockchain ETF

February 13th, 2018 by ETF Store Staff

Christian Magoon, Founder & CEO of Amplify ETFs, spotlights the Amplify Transformational Data Sharing ETF (BLOK) and explains the potential of blockchain technology.



Transcript

You can listen to our interview with Christian Magoon by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: The ETF we're spotlighting this week is the Amplify Transformational Data Sharing ETF, ticker symbol BLOK, great ticker. And joining us via phone from just outside Chicago to discuss this ETF is Christian Magoon, CEO of Amplify ETFs. Christian, as always, great to have you on the program.

Christian Magoon: Hey, Nate. It's great to be here. Happy New Year. Boy, the spotlight's kind of tough today. I've got my sunglasses on. Thanks for having me.

Nate Geraci: Christian, a lot we want to cover today. Blockchain is probably one of, if not the, hottest topics in ETFs right now. First, before we get to the ETF itself, I thought it might be good to have you explain what blockchain technology is. How do you describe this to the layman?

Christian Magoon: Blockchain is a decentralized database, almost like a spreadsheet, but shared across all the users of that database and it facilitates the process of recording transactions and tracking assets in a network. Really, what blockchain technology does, is it allows multiple parties to store data in a way that's very convenient, transparent, fast, audible, and because its stored across many computers instead of just one computer, its decentralized, and that helps it become, actually, more secure. Cyber security is a big issue. Blockchain is a technology, sort of like the internet is a technology. Most people discovered the internet through its widely known application, like e-mail or website, and they said "Oh, that's built on internet technology." Today, most people are discovering blockchain through its most well-known application, which is cryptocurrencies, like Bitcoin or Ethereum. Bitcoin, and other cryptocurrencies need blockchain, but blockchain doesn't need Bitcoin and that's a big revelation to some people. This is the underlying technology, blockchain technology, powering cryptocurrency, but other innovations coming to the market over the next few years.

Nate Geraci: That's a really good point. Let's talk more about that because I think you're right. I think most people who are familiar with blockchain technology probably know of it through cryptocurrencies like Bitcoin, but as you mentioned, blockchain can have many other use cases as well. I've seen blockchain mentioned as a threat to disrupt Netflix. It’s being used to track food through the supply chain. Could you maybe provide another example or two of a use of blockchain outside of cryptocurrencies?

Christian Magoon: So here's a great example with IBM. They're creating a food safety blockchain where a variety of retailers are participating and putting all their data in on their food delivery system from farm to store, Walmart is one of the big companies that's participating in it and recently Walmart had an issue with mangoes, so they came into their supply area and said, "We need to find out where this box of mangoes came from." So, they started the old process at Walmart where they go out and track down where this exactly came from and about six and a half days later, they figured out where the mangoes came from, the farm. Then, they went over to the blockchain, again this is a pilot program with IBM, and they input the barcode on the mangoes, and it took two seconds for the IBM blockchain to identify what farm the mangoes had come from and, in that few seconds, they saw every point of custody and transfer of those mangoes from that farm to the store and allowed them to take very quick action on a food safety issue. This is basically another practical way that blockchain could be used where multiple parties are putting in data. They all have access to it. They verify it. It really just speeds up businesses. Any area where there's typically a middle person today or a company that's a centralized point to verify transactions or store e-mails or other pieces of data, the blockchain goes around it and makes it more efficient where parties can communicate directly with each other. And that's just one concrete example. There's many more and we'll be hearing quite a bit more about it over this next year as more and more programs roll out.

Nate Geraci: Our guest is Christian Magoon, CEO of Amplify ETF. Alright, so let's talk about the ETF itself. The Amplify Transformational Data Sharing ETF, again ticker symbol BLOK. This just launched back in mid-January. It already has over 150 million dollars invested in it; one of the fastest growing ETFs we've seen. Walk us through what this ETF holds.

Christian Magoon: The BLOK ETF is trying to own companies that are really in three categories and these are the companies that we believe are the leaders in investing, researching, or receiving revenue from blockchain technology. This is kind of a pick and ax play, if you will, on the underlying blockchain technology market that is powering, right now, cryptocurrencies but other innovations as well. We believe that one of the leading indicators to invest in blockchain is to follow the money and the resources companies are putting into it because many of these projects are still under development. And the way to do that is to look through public data at what companies are receiving revenues from blockchain or blockchain related services. A couple companies that are breaking out are Taiwan Semi-Conductor, GMO Internet, High Blockchain Technologies, and Advanced Micro Devices. A couple of these companies are creating these specialized processors to mine blockchain or to mine Bitcoin. Essentially, they're doing verification of the data on the network so the network can continue to run. Other of these companies actually own cryptocurrency exchanges or do mining themselves. The second category is companies that are actively engaged in research and development. So, we're looking for companies that are involved in multiple research consortiums. Those are companies that would include some of the banks; Goldman Sachs would be a great example. They're involved in a variety of research consortiums and actually working on their own blockchain solution for security settlement. Then, the last one is companies that are heavily investing in blockchain technology, meaning they're investing in private companies or other types of technology they can monetize. Like, Ripple, for example is a cryptocurrency used in the financial space for transaction or transfer of monies. Believe it or not, some of those companies, leading companies, are companies like Overstock, which I think we're familiar with from an online retailer perspective. They're certainly doing a lot with DC Ventures. Citi Group is a top 5 investor in the world in blockchain technology and I think they're investing just because they're concerned about their business being disrupted. So, these are the type of companies. There's roughly about 45 companies that are in the ETF and they all have one type or another of involvement with blockchain and together that provides a pretty diversified portfolio for the BLOK ETF, across North America, Asia, and Europe. About 63%, roughly, is in North America and the rest is overseas.

Nate Geraci: Christian, this is an actively managed ETF, correct?

Christian Magoon: That's correct. We were the first to file for a blockchain ETF in the industry and had a chance to decide whether or not we wanted to do index or active and, Nate, the space is changing so quickly. We're seeing announcements happen almost on a weekly basis that materially effect these blockchain focused companies, that we didn't want to own an index product that only selected companies twice a year, that buy and hold every six months. We didn't think that worked in this space in terms of upside participation as well as potential downside protection. We call this an index plus ETF. It starts out with a basic universe of companies that qualify and then we have an active management team and research group that are watching the space on a daily basis so they can make moves within the portfolio. We feel like that's very important. You don't brush your teeth twice a year, we don't think you should just invest in blockchain stock twice a year so this is an active ETF, the BLOK ETF, BLOK.

Nate Geraci: Christian, one thing I wanted to be sure to ask you, I'm sure you've seen some of the criticism surrounding blockchain ETFs, that they're not providing pure, direct exposure to blockchain and if you look at the top holdings of your ETF, there are a number of companies where blockchain is a very small part of their overall business. You mentioned some of them. There's companies like Microsoft, IBM, Goldman Sachs, Overstock. I'm just curious, how do you respond to that criticism?

Christian Magoon: I think when you're looking at a transformational technology area, an emerging area, whether that's in technology or biotech, a lot of times you see the existing broad base players doing the most investment, the most research in that area and we think that targeting that is a great way to get ahead of the curve because these companies have the resources and the wherewithal to develop these technologies and potentially spin them off later or create new business lines. We think that you have to be anticipatory in an area like this because, in terms of companies that are 100% focused on blockchains, there's really only 4 or 5, I would say, across the global landscape. That's going to change over time. A great example, I would say, is PayPal. They were a company that was private and got acquired by Ebay. Ebay saw the potential in actual digital payments and bought them for about a billion five in the early two thousands and eventually spun PayPal out of Ebay and now that's a 150 billion dollar market cap company. Ebay saw the vision and sort of incubated PayPal and launched it into the market. We would have wanted to own Ebay because they had that vision early on. I'm sure people would have criticized us and said "No, that's an online retailer," but that underlying business was strong and that commitment was strong. We think this is one of the reasons why you have to be active, because you have to stay on top this. This is gonna change quite a bit. Today, its quote, unquote, not as pure, but it's going to be more pure as the days and the weeks and the months go on. Just a quick note, if you look at the largest technology and financial ETF, and you do a 50/50 weighting there, there's only 23% overlap in that ETF's portfolio with the BLOK ETF. So, we think that the exposure is quite unique when you actually dig down to the underlying constituents.

Nate Geraci: Something I think is very important to point out, I mentioned this, is that we have to remember there's plenty of investors trying to play blockchain by investing in many of these same companies individually. They're trying to get ahead of the curve too, and look where blockchain technology is heading. Personally, I'd much rather see them do it through a diversified ETF, so I think that's an important point to mention. Our guest is Christian Magoon, CEO of Amplify ETFs. We're spotlighting the Amplify Transformational Data Sharing ETF, ticker symbol BLOK. Christian, let’s just talk about the overall investment case for blockchain. You've touched on some of the aspects. I think while many people do associate blockchain with Bitcoin, as we said, blockchain has many other potential uses. Just give us the basic investment case for blockchain.

Christian Magoon: Almost like the internet in the early days, blockchain technology offers the potential for improved business efficiency and productivity. Gartner Group, which is kind of a leading technology research firm estimates that right now there's about 4 billion dollars of business ads through blockchain technology in the global economy. They see that rising from 4 billion in 2017 to about 176 billion in 2025. And they ultimately see this industry, the blockchain industry, adding about 3.1 trillion of business value by 2030. That's about a 48% estimated compound annual growth rate of blockchain business ad. This is a ground floor technology that's going to make sharing data, and verification of data, much, much more efficient. Companies are gonna benefit. There's applications not just in finance or technology, but were talking areas such as cyber security, healthcare records, energy management, voting potentially, as well as insurance and retail usage. Like internet technology in the early days was a little bit hard to understand and many people couldn’t see the broad applications, a lot of the experts like Gartner Group believe that this is kind of a new foundational technology and the key point, to your point, Nate, is that blockchain is a unique technology. Bitcoin needs blockchain, cryptocurrencies need blockchain, but blockchain does not need Bitcoin or cryptocurrencies. It’s an underlying foundational technology and were gonna see more things, more types of solutions being rolled out by financial and technology companies over the coming years and again, we think it's going to add a considerable amount of value and efficiency to the way business is being done today.

Nate Geraci: Alright, Christian. We have a few minutes left. Before we let you go, I do have to ask you about Bitcoin ETFs. Obviously the SEC has been very reluctant to approve these products. Do you think there should be Bitcoin ETFs and do you think we’ll see Bitcoin ETFs come to market anytime soon?

Christian Magoon: I don't believe Bitcoin ETFs are going come to market anytime soon because of the concerns expressed by the SEC. I think they're concerned about a variety of market issues with Bitcoin, including price manipulation, regulation, maybe even taxation. There's a variety of topics that have to be addressed. As you know, they recently laid out a letter to the investment community of concerns that they have that they would like to see addressed and they're fairly extensive. I don't believe we’ll see a cryptocurrency ETF here in the US in 2018 and I believe 2019 there could be some. There's some very motivated ETF sponsors and other players who would like to see an ETF be out in the marketplace. I mean, generally when there's an ETF for an asset class or a market segment, it creates a very cost efficient, liquid way to purchase a regulated investment vehicle. I think that probably cryptocurrencies could use that. It would be beneficial for investors. I think it’s just the underlying markets have to be sorted through and understood a little bit more and maybe some protections put in place before the SEC is going to bless a product like that coming to market. For now, I think the blockchain ETFs and the BLOK ETF will probably be the pick and ax way of playing this cryptocurrency and blockchain trend.

Nate Geraci: Christian, excellent spotlight today. Congratulations on all the success with BLOK. This will certainly be a fascinating area to watch moving forward. Thank you.

Christian Magoon: Nate, thanks for having me. Always good to be on and continue your great work on ETF education and look forward to speaking with you next time.

Nate Geraci: Thank you, Christian. That was Christian Magoon, CEO of Amplify ETFs. Again the ETF is the Amplify Transformational Data Sharing ETF. Ticker symbol BLOK and you can learn more about this ETF by visiting AmplifyETFs.com. That's AmplifyETFs.com.