Defiance shuts world’s first NFT-focused crypto industry ETF | ETF Strategy

Defiance ETFs is closing its thematic equity ETF providing exposure to companies operating in the crypto economy just one year after the fund’s introduction.

The Defiance Digital Revolution ETF (NFTZ US), which was unveiled in December 2021, will cease trading and liquidate immediately after the close of business on 28 February 2023.

The fund provides exposure to various participants supporting the crypto economy including firms involved with mining, asset management, trading, banking, payment processing, and the provision of mining hardware or blockchain software.

While this approach made the fund similar to other crypto industry ETFs that were already available at the time of its launch, NFTZ set itself apart from its competitors by being the first to also include exposure to firms involved in the issuance, creation, and commercialization of nonfungible tokens (NFTs).

NFTs are unique financial securities that represent digital data such as art, music, media, collectible items, virtual fashion, and gaming avatars. Ownership of an NFT is recorded on the blockchain and can be transferred by the owner, allowing NFTs to be sold and traded.

NFTZ’s launch was, however, untimely. The fund debuted at the onset of ‘crypto winter’ – a period where rising interest rates, inflation, and concerns about a potential recession made investors risk-averse and led to a massive pullback from more speculative segments of the investment landscape. Bitcoin ended 2022 at $16,500, a decline of roughly 75% from its peak price of $65,000 in mid-November 2021. NFTZ slumped a similar 76.1% last year.

The sector has exhibited a significant rally so far in 2023, however, buoyed by signs that inflation may have peaked. Both bitcoin and NFTZ jumped by around 40% in January, highlighting how the crypto market is able to bounce back due to its inherent volatility.

January’s stellar returns does not necessarily indicate the start of another bull run. And with NFTs representing one of the most speculative segments of the crypto industry, Defiance has likely concluded that the chances of NFTZ becoming a success in the near term are too low to warrant continuing the fund.