ETFs
DAPP: Crypto Stocks Lose Some Luster in 2024 as New ETFs Get Attention (NASDAQ:DAPP)
da-kuk
It was another banner year for Bitcoin and other cryptocurrencies. With the SEC’s approval of 11 spot Bitcoin ETFs in January and the subsequent approval of Ether funds recently, flows into coins and tokens remain robust. Yet after a rapid acceleration, Bitcoin’s rally stalled near its peak in late 2021. Some of the shine has also been taken away from crypto-related stocks as AI remains in the spotlight .
I to reiterate a hold rating on the VanEck Digital Transformation ETF (NASDAQ:DAPP). Valuation remains a risk in my opinion as the fund, close to the unchanged level so far in 2024, has underperformed the information technology sector (XLK) and S&P 500 in recent months.
Bitcoin +53% in 2024
In search of Alpha
Bitcoin and gold lead since the beginning of the year (Sharpe ratio)
Goldman Sachs
According to issuer, DAPP seeks to track as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Digital Assets Equity Index, which is intended to track the performance of companies that participate in the digital asset economies. The ETF aims to invest in companies at the forefront of digital asset transformation while providing investors with diversification through exposure to exchanges, mining companies and infrastructure companies. The issuer states that DAPP provides access to businesses that have the potential to derive 50% of their revenue from digital assets.
The ETF’s assets under management have remained stable just above the $100 million mark this year, failing to garner inflows despite the proliferation of cryptocurrency ownership. DAPPs Annual spending rate of 0.51% is in the middle of the pack and the bottom does not pay dividend. Always, stock price dynamics has remained high over the past year, although I will challenge the short-term dynamic trend by highlighting the technicals later in the article.
The DAPP remains a high risk ETF when analyzing trends in standard deviation and its somewhat concentrated portfolio. But liquidity is a concern with an average daily trading volume of approximately 270,000 shares over the last 90 sessions and a median bid/ask spread of 55 basis points, per VanEck, so I encourage investors to use the limit order when DAPP negotiation.
Looking closer at the portfolio, the fund is depicted in the lower right corner of the style box. This indicates a growth allocation to small caps, although there is a significant 29% exposure to mid-caps. The main driver of price action will be the crypto theme and the collective willingness of investors to take risks in companies with mixed fundamental characteristics.
On net, DAPP’s price-to-earnings ratio is considerably lower than last year when I looked at the ETF. The multiple is now below 20, while VanEck notes that the price-to-book ratio is only 1.97 as of April 30, 2024. The valuation situation has therefore improved significantly today.
DAPP: portfolio and valuation data
The morning star
My main concern with DAPP is the very heavy allocation. More than 60% of the fund is invested in its top 10 assets. This works well during periods of rising prices, as we saw during the last three months of 2023.
This year, however, prices have simply consolidated, resulting in high volatility and low risk-adjusted returns. As a niche and thematic ETF, it has strong exposure to the fintech space, with no exposure to stocks from sectors other than finance and IT.
DAPP: sectoral distribution and positioning details
In search of Alpha
Readers know that I like to look at seasonality whenever I study a stock or ETF. In this case, DAPP doesn’t have a very long history to analyze, so let’s take a look at Bitcoin’s seasonal trends. You will see that June and July have always been bullish.
Both months are up 60% of the time, with typical gains between 5% and 8%. Investors should be wary of crypto-related assets in August and September, however, as these two months have typically seen weak Bitcoin prices, which could be bearish for digital asset stocks.
Bitcoin seasonality: bullish June and July
Stockcharts.com
The technical take
Although Bitcoin has remained stable over the past few months after a sharp rise that began in January this year, the price action in DAPP is nothing out of the ordinary. Notice in the chart below that there has been a series of lower highs and lower lows since the early 2024 high. This is a consolidation pattern, and I see a price target at the rise to approximately $17.50 if a bullish breakout above the downtrend resistance line occurs. , which is currently near the $11.50 mark – the symmetrical triangle range was around $6, so we would add that on top of a possible breakout price of $11.50.
Also take a look at the rising 200-day moving average, which currently sits just above the $8 level. This tells me that the bulls remain in control of the primary trend despite price consolidation over several months. What also catches my attention is the high volume of shares traded in DAPP since December last year. Thus, we see prices consolidating as volume increases, which could amplify the possible breakout or breakdown of this current symmetrical triangle formation.
Finally, the RSI momentum oscillator at the top of the chart is mired in a neutral zone between 30 and 70, so we do not see overbought or selling conditions that lead to significant oversold DAPP readings.
Overall, I see current support near $9 with resistance in the $11.00 to $11.50 area.
DAPP: Consolidation model targets $17.50, awaiting breakout
Stockcharts.com
The essential
I reiterate a hold rating on DAPP. I like that the valuation has arrived, but the technical picture is neutral as we wait for a breakout or breakdown. I warned potential investors that the rally at the end of last year’s fourth quarter was a dangerous parabolic move. So I’m not surprised to see the fund collapse and increase in valuation.
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