Exchange Traded Funds (ETFss) which track digital assets and companies in the space have become the fund world’s worst underperformers this year as crypto prices have fallen significantly from their peak at the end of last year .
According to data compiled by Bloomberg, the three worst-performing non-leveraged ETFs listed in the US this year were all crypto-related funds. The top spot on the list of worst ETFs was held by Viridi Bitcoin Miners ETF (RIGZ), which has fallen 69% this year. The fund was trailed by Global X Blockchain ETF (BKCH) and VanEck Digital Transformation ETF (DAPP), both of which posted losses of 68% year-to-date.
During the same period, the spot price of Bitcoin (BTC) fell about 58%.
Along with the three crypto funds, ETFs in sectors such as shipping also plunged after a strong year in 2021, Bloomberg said.
The heavy losses in crypto-themed ETFs came as the Federal Reserve (Fed) tightened monetary policy and raised interest rates in a bid to rein in soaring inflation in the United States. In other words, the situation was the opposite of last year, when the Fed eased monetary policy and resorted to massive “money printing” to keep the economy afloat during lockdowns. Covid.
“These areas have clearly been major beneficiaries of a lot of monetary and fiscal stimulus. Now dry bulk freight futures and crypto are both suffering from the same disease – a very aggressive Fed,” Nate commented. Geraci, president of financial advisory firm The ETF Store, in the article.
“The easy money party is over and these two areas are now in the midst of steep withdrawals,” he added.
And while crypto funds have already posted the largest losses of any industry, more pain could still be ahead. The first sign of this came last Tuesday, when US inflation data revealed that inflation in august was slightly higher than expected at 8.3%.
Market participants now fear that the Fed will react to higher-than-expected inflation by raising rates by 100 basis points at its next meeting, something the Fed hasn’t done since 1984.
According to the CME derivatives exchange’s FedWatch tool, the probability of a 100 basis point hike is now 20%, while there is an 80% chance that the Fed will hike 75 basis points.