CLSK - BKCH: Bitcoin's Surge Helps Blockchain And Crypto Stocks Spotting Key Risks

2023-12-07 07:29:21 ET

Summary

• Bitcoin has seen a significant increase in value, up over 160% this year and approaching its all-time high, easily beating the S&P 500 in 2023 so far.
• The Global X Blockchain ETF has very high momentum today, but is currently overbought and faces technical resistance, and I highlight key price points.
• BKCH is a small fund with a concentrated portfolio, primarily focused on small-cap growth stocks in the blockchain and digital asset space.

Bitcoin (BTC-USD) is back. Each week, I review the Goldman Sachs Kickstarter report. Among the many revealing charts is the YTD total return and risk-adjusted return (Sharpe Ratio) view. Guess what’s on top – Bitcoin. The cryptocurrency is now up more than 160% on the year after hitting a bottom in June 2022, not far from $16k. With BTCUSD up about 50% from its low just two months ago, another rally of that size would send Bitcoin to within striking distance of its all-time high of $69k. Thus far on the year, BTCUSD is up about 160%, outpacing the S&P 500's 20% total return.

I have a hold rating on the Global X Blockchain ETF ( BKCH ) as I see near-term overbought conditions, a concentrated portfolio, and technical resistance on the chart during this often-favorable period on the calendar for the crypto space. Impressively, the ETF is ranked number 3 out of 2385 overall by Seeking Alpha.

Bitcoin Boasts Big 2023 Returns

For background, BKCH seeks to invest in companies positioned to benefit from the increased adoption of blockchain technology, including companies in digital asset mining, blockchain & digital asset transactions, blockchain applications, blockchain & digital asset hardware, and blockchain & digital asset integration, according to Global X . The issuer states that the theme is bigger than just cryptocurrency and that BKCH invests accordingly, with global exposure across multiple sectors and industries, though the fund is highly concentrated.

BKCH is a small fund with just $104 million in assets under management and it pays a modest 0.6% trailing 12-month dividend yield . Share-price momentum has been stellar lately, however, as evidenced by its A+ ETF Grade by Seeking Alpha, and I will detail key price levels to monitor later in the article. What’s more, the fund’s 0.50% annual expense ratio is not overly expensive, though volatile price action over the last 12 months earns BKCH a poor F risk rating. Liquidity is mixed with the ETF – average daily trading volume is low at 43k shares and Global X notes that the fund’s 30-day median bid/ask spread is exceedingly high at 0.52%, so using limit orders is highly encouraged in my opinion.

Digging into the portfolio, one of the reasons why the allocation is so risky is that it's primarily a small-cap growth fund. Just 4% of the portfolio is considered large cap and only 10% is in the value style. Thus, it is not so much macro/cyclical factors that could impact its performance but concentrated fundamental and technical swings within the digital technology and cryptocurrency universes. With a price-to-earnings ratio north of 30, it’s not cheap, though long-term EPS growth is reported above 16, making for a PEG that is not tremendously high. Global X notes the fund’s beta to the S&P 500 is high at 1.31 as of November 30, 2023.

BKCH: Portfolio & Factor Profiles

You won’t find many ETFs with fewer holdings than BKCH. There are 26 total positions, and there is an extremely high 76% of total assets invested in the top 10 stocks – thus it's important to monitor trends in those companies, particularly the top four which comprise about half of BKCH: Coinbase ( COIN ), Marathon Digital ( MARA ), CleanSpark ( CLSK ), and Riot Platforms ( RIOT ).

BKCH: Holdings & Dividend Information

Seasonally, December is one of Bitcoin’s best months of the year, and recent performance may have pulled forward typically robust year-end returns. January is actually BTCUSD’s second-worst month before big gains have historically taken place in February. These are key patterns to consider when timing your BKCH entries and exits.

Bitcoin Seasonality: Strong December, Weak January

The Technical Take

It has been an incredible run for BKCH over the last two months. Notice in the chart below that shares hit a low of $21.20 in early October before they zoomed up to a recent peak of $39.29. A lot is going on in the graph, so let’s dig in.

First, the July peak is the obvious resistance point at $44, but I also spotted an uptrend resistance line that comes into play just under $50 that investors should consider. What’s more, the RSI momentum oscillator at the top of the chart underscores just how far and how fast the rally has come – at 80, it is the most overbought since the summer. But with a long-term 200-day moving average that is positively sloped, the bulls appear in control. Additionally, I see a bearish to bullish reversal underway – that began with the break of a downtrend line earlier this year and then a series of higher lows, forming a rounded bottom pattern (illustrated in yellow). I see support at the $21 mark, and perhaps $29 can offer more near-term buying support.

Overall, the chart is constructive from a long-term point of view, but a retreat off overbought conditions would make sense here.

BKCH: Bearish to Bullish Reversal, Near-Term Overbought, $21 Support

The Bottom Line

I have a hold rating on BKCH. Momentum is very high, and a long-term bullish reversal is in play, but it’s a very concentrated allocation at a high valuation today.

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