On January 30th the team at Exchange Traded Concepts, an Exchange Traded Fund issuer, released the "Ultimate Buzz Word" ETF, the Innovation Shares NextGen Protocol ETF (KOIN). Alright, I’ll admit, the name may not be loaded with buzz words. But the fund’s concept is loaded with recently popular buzz words such as “Blockchain” and “Artificial Intelligence.”
The KOIN ETF is a fund that tracks an index that uses artificial intelligence to pick global stocks which have current or future interests in blockchain technology. On the surface, this ETF just feels like someone trying to take advantage of today’s hot investing buzz words.
Even after Bitcoin rose from under $1,000 to above $19,000 in less than a year, most retail investors didn’t fully understand what blockchain technology was. But they knew that while a lot of big-name investors and economist were skeptical of Bitcoin and other cryptocurrencies’, the one thing most people would agree on was that blockchain technology was great.
Blockchain soon became the word companies wanted to be associated with, not Bitcoin. This became even truer when Bitcoin fell from $19,000 to a low of just above $6,000 and very evident when we saw a beverage company pivot its business to a blockchain company and that it was changing its name from Long Island Iced Tea to Long Blockchain (LBCC). (Oh and I will mention that company now has a new CEO and plans to spin off its old beverage company after the stock has gone on a crazy ride.)
The Blockchain effect has been less powerful than say the impact of adding Dot Com to a company’s name in the early 2000’s, but that doesn’t mean its dead yet. Bitcoin crashing certainly hurt the buzzword, but as we see the price climb back above $11,000 per coin, the allure to be associated with blockchain may continue to grow.
But this all leads me back to my original issue with KOIN; most people still don’t fully understand what blockchain technology is, they just know it’s okay. Furthermore, because they don’t fully understand how the ledger system works and why some people believe it could completely change so many different industries, they blindly follow others into investments that tout the idea that they are involved in this revolutionary technology.
But my issues with KOIN don’t stop there. It’s not bad enough that it invests in blockchain, but those at Innovation Shares thought it would be better to have computers picking the stocks KOIN would own. According to ETF.com, the team at Innovation Shares have stated that to invest in blockchain as a theme, it requires something other than a traditional, fundamentals approach based on a company’s financials. (Wow if that wasn’t a scary sentence!)
So, let’s break that all down. Traditional investing which looks at a company’s financials from a fundamental standpoint is not how blockchain companies should be valued. That again sounds a lot like the 2000’s when people said “if they have a website it’s going to be a winner in the future” or that “housing prices can’t go down.” No, you guys are right, we should value a new blockchain technology company based on the same metrics that we assess other technology companies or just any company in general.
The next issue is that this artificial intelligence algorithm that KOIN is essentially untested. We don’t know how well it may work or more importantly how terrible it possibly will perform. Now that is not to say that after working through some kinks and a few years of proven returns that it couldn’t be a great stock picker, my concern is that in the short term, I wouldn’t want to be one of KOIN test dummy’s letting this algorithm gamble with my money.
I believe blockchain technology will change the way some industries operate. I also think that there will be a day that artificial technology is better at picking stocks than humans. But, I don’t believe either of those days is today, tomorrow, or the next. Those days are years down the road, and as for investors thinking about buying into Innovation Shares NextGen Protocol ETF (KOIN) because it hits today’s hot buzzwords, my advice would be to give it a few years and see if you are still as intrigued with what the fund is investing in and how its stocks are being picked.
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold positions in any of the companies mentioned at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.