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Why SPDR® Galaxy Digital Asset ETFs?

There was a time when digital assets, and cryptocurrencies in particular, were brushed off as passing trends. But the digital asset ecosystem has continued to evolve since the first block of bitcoin was mined in 2009, and growth has accelerated across industries and markets.

September 10, 2024 7 min read

There are now 580 million crypto users worldwide¹with $80 billion of revenue projected in 2024 for the digital assets market.²

Both institutional and retail investors see the opportunity for digital assets to improve portfolio diversification, and the potential for long-term growth in the digital asset ecosystem. Among institutional investors, 94% believe in the long-term value of blockchain technology and/or digital assets³ and 64% of retail investors have invested in digital assets or related products (Figure 1).⁴

Figure 1: Investors Are Bullish on Digital Assets

94%

of institutional investors report they believe in the long-term value of blockchain and/or digital assets

64%

of retail investors have invested in digital assets or related products

Source: “Gaining Ground: How Institutional investors plan to approach digital assets in 2024,” EY Parthenon, May 2024 and “Retail Digital Assets Investor Survey,” EY-Parthenon, March 2024.

Prior to 2009, a digital asset was thought of as anything created and stored digitally. At first, that ranged from family photos and videos to corporate records — objects that might be valuable only to the creator or organization. With the introduction of blockchain technology, users can create, store, transact, and verify, digitally, any asset or data across a decentralized, secure, and transparent network, revolutionizing the way we think about digital ownership.

The first blockchain and cryptocurrency, Bitcoin, was launched in 2009, redefining digital assets and creating a new ecosystem that now spans cryptocurrencies, non-fungible tokens (NFTs), stablecoins, financial applications, gaming, tokenized assets, and much more. With the potential for almost anything to be secured by blockchain technology, the digital asset ecosystem is now valued at $2.4 trillion.⁵

Why Invest in Digital Assets Now?

There is a strong network effect for digital asset adoption. Ownership in digital asset is growing at a similar pace to internet users in the late 1990s. With the SEC’s approval of Crypto ETFs, digital asset exposure is beginning to be thought of as a core holding vs a satellite position in investors’ portfolios. As adoption of blockchain technology continues to expand through new use cases across multiple industries, blockchain-related companies may benefit from new growth opportunities. Other revolutionary technologies, such as artificial intelligence (AI), may even help accelerate blockchain adoption by leveraging synergistic value chains and potentially compounding the growth of the digital asset ecosystem.

There are also markets and regulatory catalysts on the horizon. Looming rate cuts by the Federal Reserve (Fed) will likely support risk assets, including cryptocurrencies and blockchain-related stocks. Building off the momentum of the SEC’s approval of bitcoin and Ethereum ETFs, bipartisan support in Congress will help provide guidance and a framework on how to regulate digital assets, providing a clear path on how institutions can participate in this industry. The result could potentially further accelerate the adoption of blockchain and digital assets, and bring new blockchain-related companies public.

The Benefits of Active Management for Digital Assets

The astounding pace of innovation in the digital assets industry supports taking an active approach to capture its long-term growth potential. That is, active managers dedicated to understanding the nuances of the digital assets ecosystem, and positioning portfolios to capture its rapid adoption, focus on:

Market Volatility and Inefficiencies: Digital assets have historically been more volatile than traditional asset classes.⁶ The emerging nature and rapid evolution of the digital assets industry creates opportunities for active managers to take advantage of mispriced or undervalued companies.
Market Maturity/Adoption Curve: Since the pace of adoption and market maturity varies across different blockchains and use cases, active managers may have a deeper understanding of the rewards and risks in various parts of the ecosystem, staying current and nimble in portfolio positions.
Technological Complexity: Active managers with deep knowledge of the digital assets ecosystem are well-positioned to identify the companies most likely to benefit from the adoption of digital assets and to find unique investment opportunities for investors.
Diverse Ecosystem: The digital assets ecosystem offers a wide range of ways to gain exposure. The integration of digital assets and blockchain technology across industries and companies of all sizes gives active managers a wide universe of opportunities from which to build well-diversified portfolios with high growth potential.

A Powerhouse Partnership with Galaxy Asset Management

State Street Global Advisors’ partnership with Galaxy makes the digital ecosystem more accessible to the broader investment community through the creation of three new ETFs that offer unique exposures to digital assets.

Since 2018, Galaxy has delivered institutional-grade access to the digital assets ecosystm across three complementary operating businesses: Global Markets, Asset Management, and Digital Infrastructure Solutions. As one of the world’s largest digital assets and blockchain investment managers, Galaxy Asset Management provides access to the growing digital economy by applying traditional financial analysis and deep crypto know-how to help generate alpha through:

Digital Asset Leadership: Galaxy has extensive global expertise in blockchain and cryptocurrency with crypto-focused and native specialists uniquely equipped to navigate a rapidly evolving space. Nearly 500 employees, who share the same passion of promoting the responsible adoption of digital assets globally.
Risk Management: Galaxy’s market discipline and resilience through every major crypto cycle over the past six-plus years have been driven by robust risk management and governance practices.
Network Connections: Galaxy is exceptionally connected throughout the blockchain and digital assets ecosystem which provides them with unique insights into blockchain-related companies and businesses.

Galaxy Asset Management by the Numbers

15+

Funds, including indexed, active, and venture

50+

Galaxy Asset Management team members across North America, EMEA, and APAC

$4.72B

Assets under management ⁷

1,000+

Institutional and wealth clients

Galaxy’s Investment Approach

Holistic Coverage Includes companies from large, secular winners to small, less well-known companies that the manager believes are major beneficiaries and drivers of growing adoption of digital assets, blockchain, and other disruptive technologies

Focus on Key Players Focuses on core companies within the theme and the industries comprising their value chain, accelerating adoption

Cyclical Opportunities in Secular Trends Aims to capitalize on cyclical opportunities throughout the secular trend of digital asset and new, potentially disruptive, technologies

Risk Mitigation Provides opportunities to generate alpha while mitigating portfolio risk via diversification and active management

Introducing SPDR® Galaxy ETFs

These three new SPDR ETFs deliver well-researched, high-conviction exposure to the digital asset ecosystem:

How to Implement SPDR Galaxy ETFs

Allocating to digital assets and cryptocurrency depends on your risk tolerance and investment horizon. Consider using DECO and HECO to complement existing direct cryptocurrency exposures to enhance diversification, or as a means to gain exposure to digital assets without having to own cryptocurrencies directly.

And since digital assets are underrepresented in traditional core portfolios, you also can consider DECO and HECO to replace a portion of your growth allocation to complement the core and enhance growth potential.

TEKX’s focus on companies supporting new disruptive technologies across economic segments can complement existing Technology sector exposure. And given the long-term growth potential of transformative technologies, you also can consider replacing a portion of your growth allocation with TEKX to enhance and diversify growth allocations beyond traditional growth exposures.

Benefits of ETFs for Investing in Digital Assets

The unique benefits of the ETF wrapper make the vehicle a sensible choice for investing in digital assets:

Diversification: Investors gain exposure to a basket of digital assets companies and cryptocurrencies in a single security, making it easy to build diversified portfolios. Our 2024 ETF Impact Survey found individual investors report diversification as the top reason for using ETFs (49%).
Access: ETFs are the great equalizer in terms of market access, and they’ve democratized digital asset investing. Now, individuals have the same access to underlying securities and pricing as institutional investors.
Liquidity: High liquidity implies numerous buyers and sellers for an asset, making it easy to trade without significant price fluctuations. Because ETFs trade throughout the day on an exchange (known as the secondary market), they are considered liquid investments. And through their creation and redemption process, ETFs gain a liquidity boost from the primary market — where securities are created and initially sold. According to our 2024 ETF Impact Survey, 91% of institutional investors who identified as heavy ETF users report that liquidity is important to their institution’s investment strategy.
Tactical Asset Allocation: Liquid ETFs allow investors to make quick adjustments to their long-term asset allocation to take advantage of short-term tactical opportunities, even in times of market stress.
Flexible Trading: ETFs also offer trading techniques like limit orders, stop-loss orders and buying on margins.

Learn more about investing in the digital assets evolution.

Footnotes

Glossary

Blockchain
A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via an algorithm. This public ledger records all transactions that have ever been executed on that blockchain. Blockchains are constantly growing, as completed ‘blocks,’ or transactions, are added in a linear, chronological order. Every computer connected to the Bitcoin network gets a copy of the blockchain which, in theory, makes the whole system more secure as more computers, or “nodes”, become part of the blockchain.

Cryptocurrency
Cryptocurrency, or crypto, is a digital currency designed to work as a medium of exchange or store of value through a blockchain network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

Exchange
The marketplace where securities, commodities, derivatives and other financial tools such as ETFs are traded. Exchanges, such as stock exchanges, allow for fair and orderly trading and efficient circulation of securities prices. Exchanges give firms looking to market publicly listed securities the platform to do this.

Exchange Traded Fund (ETF)
An ETF is an open-ended fund that provides exposure to underlying investment, usually an index. Like an individual stock, an ETF trades on an exchange throughout the day. Unlike mutual funds, ETFs can be sold short, purchased on margin and often have options chains attached to them.

Futures
Financial contracts that obligate buyers and sellers to buy or sell an asset — often physical commodities or financial instruments — at a predetermined future date and price. Futures contracts also stipulate the quality and quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Some futures call for physical delivery; others are settled in cash.

Futures Exchange
A central marketplace where futures contracts, options or other derivatives are traded.

Non-fungible Token (NFT)
A unique digital identifier that is recorded on a blockchain and used to certify ownership and authenticity. It cannot be copied, substituted, or subdivided. NFT ownership is recorded in the blockchain and can be transferred by the owner, allowing NFTs to be sold and traded.

Disclosure

Investing involves risk including the risk of loss of principal.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.

Non-diversified funds that focus on a relatively small number of securities tend to be more volatile than diversified funds and the market as a whole.

The Fund may invest in companies within the cryptocurrency, digital asset and blockchain industries that use digital asset technologies or provide products or services involved in the operation of the technology. The technology relating to digital assets, including blockchains and cryptocurrency, is new and developing and the risks associated with digital assets may not fully emerge until the technology is widely used. The effectiveness of the Fund’s strategy may be limited given that the operations of companies in the cryptocurrency, digital asset and blockchain industries are expected to be significantly affected by the overall sentiment related to the technology and digital assets, and that the companies’ stock prices and the prices of digital assets could be highly correlated. Certain features of digital asset technologies, such as decentralization, open source protocol, and reliance on peer-to-peer connectivity, may increase the risk of fraud or cyber-attack. Restrictions imposed by governments on digital asset related activities may adversely impact blockchain companies and, in turn, the Fund. Companies within the cryptocurrency, digital asset and blockchain industries may also be impacted by the risks associated with digital asset markets generally.

The Fund may invest in companies that rely on technologies such as the Internet and depend on computer systems to perform business and operational functions, and therefore may be prone to operational and information security risks resulting from cyber-attacks and/or technological malfunctions. Successful cyber-attacks against, or security breakdowns of, a company included in the Fund’s portfolio may result in material adverse consequences for such company, as well as other companies included in the portfolio, and may cause the Fund’s investments to lose value.

Concentrated investments in a particular industry tend to be more volatile than the overall market and increases risk that events negatively affecting such industries could reduce returns, potentially causing the value of the Fund’s shares to decrease.

The Fund is actively managed. The sub-adviser’s judgments about the attractiveness, relative value, or potential appreciation of a particular sector, security, commodity or investment strategy may prove to be incorrect, and may cause the Fund to incur losses. There can be no assurance that the sub-adviser’s investment techniques and decisions will produce the desired results.

The value of certain of the Fund’s investments in cryptocurrency ETFs and ETPs that invest in crypto assets and in publicly traded securities of companies engaged in digital asset-related businesses and activities are subject to fluctuations in the value of the crypto asset, which may be highly volatile. The market for crypto asset futures contracts may be less developed, and potentially less liquid and more volatile, than more established futures markets.

The Fund’s use of options involves speculation and can lead to losses because of adverse movements in the price or value of the underlying stock, index, ETF, ETP or other asset, which may be magnified by certain features of the options. The Fund’s successful use of options depends on the ability of the Adviser to forecast market movements correctly.

Companies that provide products or services that are supporting or accelerating the disruptive potential of novel technologies (“Transformative Tech Accelerators”) are engaged in emerging industries and/or new technologies that may be unproven. Transformative Tech Accelerators are vulnerable to rapid changes in product cycles, and may have limited product lines, markets, financial resources or personnel. Companies that rely heavily on technology tend to be more volatile than the overall market and are subject to additional risks specific to their industries.

State Street Global Advisors Funds Distributors, LLC is the distributor for certain registered products on behalf of the advisor. SSGA Funds Management, Inc. has retained Galaxy Digital Capital Management LP (“Galaxy Digital”) as the sub-adviser. State Street Global Advisors Funds Distributors, LLC is not affiliated with Galaxy Digital.

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