DAM - Crypto Tailwinds Lift Digital Assets Equities

Summary

• The crypto rebound has driven an even larger rebound among digital assets equities, strengthening the case that digital assets equities represent a leveraged bet on digital assets.
• All of the top 10 non-leveraged ETFs year-to-date are Bitcoin or blockchain related.
• The new year has brought positive tailwinds into crypto. Since the year started, digital assets and equities have outperformed the broad market.

The crypto rebound has driven an even larger rebound among digital assets equities, strengthening the case that digital assets equities represent a leveraged bet on digital assets.

Digital assets have bounced back ferociously after a dismal 2022. In fact, all of the top 10 non-leveraged ETFs year-to-date are Bitcoin or blockchain related. ¹ The MVIS Global Digital Assets Equity Index has even outperformed Bitcoin and Ethereum year to date, suggesting digital assets equities may be a leveraged bet on the digital assets market, with the potential to perform better in a bull market and worse in a bear market. In a recent blog , we addressed the fundamental and technical reasons why Bitcoin is rallying. In this piece, we will focus on the equities.

Performance Lowlights in Digital Assets Equities

Since its inception, the Digital Assets Equity Index has significantly underperformed both the broad equity benchmark and digital assets benchmarks.

Source: Morningstar as of 1/31/2023. Past performance is no guarantee of future results. Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Certain indices may take into account withholding taxes. Investors cannot invest directly in an Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Index returns assume that dividends have been reinvested.

In a blog published over the summer , we identified a few reasons why digital assets and related equities had underperformed at the time. Simply put, they took on too much debt. Among listed equities, Bitcoin miners in particular borrowed too much when times were good, and many have filed for bankruptcy, ceased operations, or were delisted from major exchanges in 2022.

• Voyager Capital (5.3% weight on 12/31/21) filed for bankruptcy after Three Arrows Capital defaulted on hundreds of millions worth of unsecured loans that Voyager had made.
• Core Scientific (4.5% weight on 3/31/21) filed for bankruptcy after falling Bitcoin prices severely hampered the company's abilities to pay its outsized debts.
• EQONEX Limited (5.2% weight on 12/31/20) was delisted from the Nasdaq exchange after failing to maintain a minimum of $1 share price.

Beyond these, many companies (including Stronghold Digital Mining, Greenidge Generation and Core Scientific) have had to undergo significant debt restructuring to avoid outright bankruptcy.

2023: A New Hope?

The new year has brought positive tailwinds into crypto. Since the year started, digital assets and equities have outperformed the broad market. It's impossible to predict if this is a short-term bounce or if the crypto bear market is really over. What's interesting to note is the degree of outperformance that crypto equities have had over digital assets themselves. Year to date, the MVIS Global Digital Assets Equity Index has outperformed both Bitcoin and Ethereum by nearly double.

Some analysts posit that the shortage of liquid crypto-related stocks may be drawing investors into the small handful of liquid options (and ETFs), leading to gains that may exceed the fundamental improvement. Keep in mind that some crypto-related SPACs failed to merge in 2022 (Circle and eToro are two examples), leading to fewer liquid options for investors looking to allocate to crypto.

We believe that digital assets equities represent a leveraged bet on digital assets. In a bull market, digital assets equities would be expected to perform better than digital assets, and in a bear market, they would be expected to perform worse. For years, we've seen this relationship play out in gold and gold equities.

Source: Morningstar as of 1/31/23. Past performance is no guarantee of future results. Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Certain indices may take into account withholding taxes. Investors cannot invest directly in an Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Index returns assume that dividends have been reinvested.

Digital Transformation Correlation and Portfolio Positioning

The MVIS Global Digital Assets Equity Index provides diversified exposure to companies at the forefront of the digital assets transformation, including digital assets exchanges, miners and other infrastructure companies. By design, these companies must generate more than 50% of their revenues from digital assets business lines. This leads to a basket of companies that are pure-play-meaning, they are actually operating within the digital assets business. Because these companies are pure-play and because they are operating within digital assets, their performance is typically highly correlated to the broader digital assets market.

Source: Morningstar as of 1/31/23. Past performance is no guarantee of future results. Investors cannot invest directly in an Index.

With these correlations in mind, we believe that the VanEck Digital Transformation ETF (DAPP) can provide exposure in a growth, disruption, innovation or alternative sleeve and serve as a core-satellite allocation. These names are not in the broad market benchmarks (yet), and the return profile does indicate a low correlation to the broad market. Investors may receive diversification and potential for alpha over a longer time horizon. It's also important to emphasize that the MVIS Global Digital Asset Equity Index is new and without a long track record. That correlation to both digital assets and broad equity benchmarks will most likely not remain static.

Access Digital Assets Exposure with VanEck

VanEck currently offers three publicly-traded ETFs that provide access to different areas of the digital assets opportunity set:

• VanEck Digital Transformation ETF ( DAPP ) provides exposure to companies participating in the digital assets economy.
• VanEck Digital Assets Mining ETF ( DAM ) offers access to companies participating in the digital assets mining economy.
• VanEck Bitcoin Strategy ETF ( XBTF ) seeks capital appreciation by investing in bitcoin futures contracts. The Fund is actively managed and offers exposure to bitcoin-linked investments through an accessible exchange-traded vehicle. The Fund does not invest in bitcoin or other digital assets directly .

Important Disclosures

¹ Source: Morningstar as of 2/3/2022.

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments/cryptocurrencies mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.

MVIS Global Digital Assets Equity Index: intends to track the largest and most liquid companies in the digital assets segment.

MVIS CryptoCompare Bitcoin Index: intends to track the price of Bitcoin.

MVIS CryptoCompare Ethereum Index: intends to track the price of Ethereum.

MVIS CryptoCompare DA 100 Index: intends to track the performance of the 100 largest digital assets.

NASDAQ 100 Index: intends to track 100 of the largest non-financial companies listed on the Nasdaq stock market.

S&P 500 Index: intends to track the performance of 500 large companies listed on stock exchanges in the United States.

The S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC's indices please visit S&P Dow Jones Indices . S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

Bitcoin (BTC-USD) is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

Ethereum (ETH-USD) is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.

VanEck Digital Transformation ETF (DAPP) and VanEck Digital Asset Mining ETF (DAM)

DAPP and DAM will not invest in digital assets (including cryptocurrencies) (i) directly or (ii) indirectly through the use of digital asset derivatives. The Fund also will not invest in initial coin offerings. Therefore the Fund is not expected to track the price movement of any digital asset.

Investors in the Funds should be willing to accept a high degree of volatility in the price of the Fund's Shares and the possibility of significant losses. An investment in the Funds involves a substantial degree of risk. An investment in the Funds is not a deposit with a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Therefore, you should consider carefully various risks before investing in the Funds, each of which could significantly and adversely affect the value of an investment in the Funds.

An investment in the VanEck Digital Transformation ETF (DAPP) may be subject to risks which include, among others, risks related to investing in digital transformation companies, special risk considerations of investing in European issuers, equity securities, small- and medium-capitalization companies, information technology sector, financials sector, foreign securities, emerging market issuers, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and industry concentration risks, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Small- and medium-capitalization companies may be subject to elevated risks.

An investment in the VanEck Digital Assets Mining ETF (DAM) may be subject to risks which include, among others, risks related to investing in digital asset miners, special risk considerations of investing in Asian and Chinese issuers, equity securities, micro-, small- and medium-capitalization companies, information technology sector, financials sector, foreign securities, emerging market issuers, depository receipts, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and index-related concentration risks, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Micro-, Small- and medium-capitalization companies may be subject to elevated risks.

The technology relating to digital assets, including blockchain, is new and developing and the risks associated with digital assets may not fully emerge until the technology is widely used. Digital asset technologies are used by companies to optimize their business practices, whether by using the technology within their business or operating business lines involved in the operation of the technology. The cryptographic keys necessary to transact a digital asset may be subject to theft, loss, or destruction, which could adversely affect a company's business or operations if it were dependent on the digital asset. There may be risks posed by the lack of regulation for digital assets and any future regulatory developments could affect the viability and expansion of the use of digital assets.

Digital asset miners and other hardware necessary for digital asset mining are subject to the risk of malfunction, technological obsolescence, the global supply chain issues and difficulty and cost in obtaining new hardware. Malfunctions and normal wear and tear will, at any point in time, cause a certain number of digital asset miners to be taken off-line for maintenance or repair. Any major digital asset miner malfunction could cause significant economic damage. The physical degradation of miners will require replacement of miners. Additionally, as technology evolves, there may be a need to acquire newer models of miners to remain competitive, which can be costly and may be in short supply. Given the long production period to manufacture and assemble digital asset miners and the current global semiconductor chip shortage, there can be no assurance that miners can acquire or maintain enough digital asset mining computers or replace parts on a cost-effective basis for efficient and profitable digital asset mining operations.

VanEck Bitcoin Strategy ETF

An investment in the VanEck Bitcoin Strategy ETF (XBTF) may be subject to risks which include, among others market and volatility, investment, futures contract, derivatives, investments related to Bitcoin and Bitcoin futures, derivatives, counterparty, investment capacity, target exposure and rebalancing, borrowing and leverage, indirect investment, credit, interest rate, illiquidity, investing in other investment companies, management, new fund, non-diversified, operational, portfolio turnover, regulatory, repurchase agreements, tax, of cash transactions, authorized participant concentration, no guarantee of active trading market, trading issues, fund shares trading, premium/discount and liquidity of fund shares, U.S. government securities, debt securities, municipal securities, money market funds, securitized/asset-backed securities, and sovereign bond risks, all of which could significantly and adversely affect the value of an investment in the Fund.

The value of Bitcoin and the Fund's Bitcoin Futures holdings, could decline rapidly, including to zero. You should be prepared to lose your entire investment. The Fund does not invest in Bitcoin or other digital assets directly.

The further development and acceptance of the Bitcoin network, which is part of a new and rapidly changing industry, is subject to a variety of factors that are difficult to evaluate, the slowing, stopping or reversing of the development or acceptance of the Bitcoin network may adversely affect the price of Bitcoin and therefore cause the Fund to suffer losses, regulatory changes or actions may alter the nature of an investment in Bitcoin or restrict the use of Bitcoin or the operations of the Bitcoin network or venues on which Bitcoin trades in a manner that adversely affects the price of Bitcoin and, therefore, the Fund's Bitcoin Futures. Bitcoin generally operates without central authority (such as a bank) and is not backed by any government, Bitcoin is not legal tender and federal, state and/or foreign governments may restrict the use and exchange of Bitcoin, and regulation in the United States is still developing.

Futures Contract Risk. The use of futures contracts involves risks that are in addition to, and potentially greater than, the risks of investing directly in securities and other more traditional assets. The market for Bitcoin Futures may be less developed, and potentially less liquid and more volatile, than more established futures markets. Bitcoin Futures are subject to collateral requirements and daily limits that may limit the Fund's ability to achieve its target exposure. Margin requirements for Bitcoin Futures traded on the Chicago Mercantile Exchange ("CME") may be substantially higher than margin requirements for many other types of futures contracts. Futures contracts exhibit "futures basis," which refers to the difference between the current market value of the underlying Bitcoin (the "spot" price) and the price of the cash-settled futures contracts.

This risk may be adversely affected by "negative roll yields" in "contango" markets. The Fund will "roll" out of one futures contract as the expiration date approaches and into another futures contract on Bitcoin with a later expiration date. The "rolling" feature creates the potential for a significant negative effect on the Fund's performance that is independent of the performance of the spot prices of the Bitcoin. A market where futures prices are generally greater than spot prices is referred to as a "contango" market. Therefore, if the futures market for a given commodity is in contango, then the value of a futures contract on that commodity would tend to decline over time (assuming the spot price remains unchanged), because the higher futures price would fall as it converges to the lower spot price by expiration. Extended period of contango may cause significant and sustained losses.

Unlike traditional mutual funds that are structured as regulated investment companies for U.S. federal income tax purposes, the Fund has not elected and has no current intention to elect to be treated as a regulated investment company under the Code because the extent of our direct investments in Bitcoin Futures would generally prevent the Fund from meeting the qualification requirements under the Code for regulated investment companies.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com . Please read the prospectus and summary prospectus carefully before investing.

General Cryptocurrency Disclosures

Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Cryptocurrencies are not covered by either FDIC or SIPC insurance.

Investing in cryptocurrencies comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.

The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency's blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.

• Investors must have the financial ability, sophistication and willingness to bear the risks of an investment and a potential total loss of their entire investment in cryptocurrency.
• An investment in cryptocurrency is not suitable or desirable for all investors.
• Cryptocurrency has limited operating history or performance.
• Fees and expenses associated with a cryptocurrency investment may be substantial.

There may be risks posed by the lack of regulation for cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should conduct extensive research before investing in cryptocurrencies. Past performance is not a guarantee of future results.

Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.

© 2023 Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation

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