BLOK ETF: Ahead Of The Bitcoin Halving, Key Resistance Is In Play

It’s that time in the cycle. The bitcoin halving, which takes place every four years, is set to occur next month. It’s a process in which the rewards miners receive for verifying and adding transactions to the blockchain are cut in half – fewer bitcoins are then created, which is seen as positively impacting the supply/demand dynamic.

Historically, this has been a bullish catalyst for investors in the world’s largest cryptocurrency. Perhaps as a result, we have seen strong returns so far this year in Bitcoin, Ether, Solana, and the like. What’s more, individual companies exposed to digital currencies have seen tremendous rallies over recent months, generally trouncing even the stout returns of the S&P 500.

I have a hold rating on the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK). I see the high-momentum fund as richly priced and at a key juncture on the technical chart.

Halving Ahead: Bitcoin and Related Stocks in the Spotlight

According to the issuer, BLOK invests at least 80% of its net assets in the equity securities of companies actively involved in the development and utilization of blockchain technologies. Blockchain is a peer-to-peer shared, distributed ledger that can track tangible, intangible, and digital assets, and companies in all business sectors through the process of recording transactions and tracking assets in a business network.

Despite rapid appreciation over the past six months, BLOK remains a small ETF with just $750 million in assets under management. It also carries a high 0.95% annual expense ratio, which makes me uneasy from a long-term portfolio-holding perspective. It’s also not a fund that caters to income-hungry investors given a low 0.95% trailing 12-month dividend yield.

Risk metrics are another sore spot – BLOK’s standard deviation is a whopping 46% as of March 24, 2024 – that’s about three times that of the S&P 500, to put that in context. But liquidity metrics are healthy as investors play the ETF – average daily volume is north of 300,000, though its 30-day median bid/ask spread is 0.15%, so using limit orders during less liquid periods of the trading range is prudent.

BLOK’s largest holdings are either non-profitable on a trailing basis or trade at elevated earnings multiples. Bigger picture, the fund has mixed exposure across the Morningstar Style Box – there’s 38% exposure to large caps and the portfolio leans to the growth side while just 24% is considered value. So, there is actually some size and style diversification here, but I still expect the ETF’s holdings to generally move together based on how bitcoin and other cryptocurrencies perform.

BLOK: Non-Profitable & Richly Valued Holdings

Bigger picture, 55% of BLOK is comprised of Financials sector companies. It’s really a next-generation fintech portfolio with small exposure to non-tech-related industries. With the top 10 positions accounting for 40% of BLOK, there’s a decent amount of single-stock diversification compared to some of its peers. The largest holding, CleanSpark (CLSK) is 5% of the ETF.

BLOK: Holdings & Dividend Information

Seasonally, April and May are poor months for BLOK, though its track record only dates back to early 2018. More bullish price action has historically taken place in June and July, so being patient with establishing a position in the fund could be wise over the next several weeks.

BLOK: Bearish April-May Seasonal Trends

The Technical Take

BLOK has been a remarkable winner since early last year. With shares having doubled from a year ago, I see potential trouble on the chart. Notice in the graph below that the $37 to $40 range has been a key battleground between the bulls and bears since 2021. The fund found buying support there on pullbacks during the cryptocurrency craze three years ago.

Then, in early 2022, the ETF fell under $39, plunging to a low under $30. Rally attempts to $37 failed, and the fund sunk further into its bear market. A low below $15 was notched late in the year, and the long-term 200-day moving average then inflected higher by last summer. Today, BLOK finds itself right back at “the scene of the crime,” as technicians say. It’s also close to the 50% retracement point from the late 2021 high to the December 2022 low.

The trend is clearly higher, but I anticipate a pause at current levels based on this apparent resistance range. Moreover, take a look at the RSI momentum oscillator at the top of the chart – it’s printing a lower high while price advances. That’s a bearish divergence which could portend a price pullback. There’s trendline support in the low $30s while $32 to $33 has been a critical area, too.

Overall, BLOK’s price is trending higher, but with the fund back near resistance, taking profits here makes sense.

BLOK: Revisiting Key Resistance, Bearish RSI Divergence

The Bottom Line

I have a hold rating on BLOK. I like that the trend points to longer-term upside, but a high expense ratio and pricey portfolio, along with technical resistance on the chart are concerns.