FDIG: Cryptocurrency Exposure With A Broader Industry Lean

Summary Fidelity Crypto Industry and Digital Payments ETF offers diversified exposure to cryptocurrency-related companies, focusing on mining, payments, and brokerage ￰0￱ provides moderate liquidity, a 0.40% expense ratio, and is best used as a satellite position in a diversified portfolio, with a suggested 2% ￰1￱ of the ETF's holdings are shifting toward data center infrastructure and power management, potentially benefiting from the AI adoption ￰2￱ underperformance versus peers and higher trading costs, FDIG receives a Hold rating; STCE may be more optimal due to lower fees and better historical ￰3￱ Fidelity Crypto Industry and Digital Payments ETF ( FDIG ) is a passively managed exchange-traded fund designed to provide exposure to companies that participate in the cryptocurrency market, including bitcoin miners, cryptocurrency brokerages, and financial ￰4￱ ETF has a net expense ratio of 40 bps and provides moderate liquidity for active ￰5￱ Fidelity Crypto Industry Digital Payments ETF FDIG was launched by Fidelity Investments on April 19, 2022, on the Nasdaq ￰6￱ strategy was designed to provide investors with exposure to companies that participate in the cryptocurrency industry, including payments, mining, and trading ￰7￱ ETF is passively managed, meaning that it is managed to perform in line with an underlying index, the Fidelity Crypto Industry and Digital Payments ￰8￱ the high growth and volatility of the shares within the strategy, FDIG exhibits a relatively high turnover rate of 53%.

The Fidelity Crypto Industry and Digital Payments Index is a thematic Index with constituents primarily being involved in the cryptocurrency or digital payments-related ￰9￱ inclusion requires at least 50% of the constituents’ revenue to be derived from cryptocurrency or blockchain technology ￰10￱ addition to this, the Index selects the top 20 digital payments stocks that derive at least 50% of their revenue from digital payments' processing activities based on average daily volume ￰11￱ Index requires a minimum market cap of $100mm with a 6-month average daily trading volume above $2mm. The Index is weighted in favor of cryptocurrency and blockchain technology companies, making up at least 60% of the total Index ￰12￱ Index caps constituent weights at 22.5% and is rebalanced ￰13￱ is relatively concentrated across 54 holdings, with the top 10 making up 44.46% of net ￰14￱ contrast, the bottom 10 holdings make up 4.53% of net ￰15￱ portfolio is widely diversified across geographies, with the US accounting for 70% of ￰16￱ regions include Australia at 6.25%, Canada at 4.84%, and Japan at 4.65%.

Within the strategy, roughly 37% of net assets are allocated to bitcoin mining companies; roughly 45% of net assets are allocated to companies that participate in payments or cryptocurrency brokerage ￰17￱ top holdings within the ETF include Coinbase Global ( COIN ) at 7.1%, Circle Internet Group ( CRCL ) at 6.47%, and IREN Ltd. ( IREN ) at 5.07%. Taking into consideration the total portfolio, many of the companies are transitioning from pure-play cryptocurrency development companies towards data center infrastructure and power management, diversifying outside of the single operating unit approach. I believe this could create an appealing investment approach, particularly as these two factors become more prominent in the era of AI ￰18￱ example, MARA Holdings ( MARA ) has been diversifying into data center hosting as well as offering power distribution orchestration software in order to diversify away from being a pure-play bitcoin mining ￰19￱ challenging traditional IT infrastructure and data center development companies like Dell Technologies ( DELL ) or Oracle Corp .

( ORCL ) may be an uphill battle, as these companies have created a prominent positioning across their areas of expertise, there may be a niche corner of the market for second-tier cloud services providers (CSPs), enterprises, or AI developers to ￰20￱ factor that may drive growth is the dollar debasement theme, which is largely centered around investors' positioning in “hard” assets like gold or ￰21￱ treasury yields may suggest otherwise, I believe the theme is more geared towards flight to safe assets rather than an exodus from the US dollar. Nonetheless, the trade has provided significant interest in the assets and may trickle into companies included in ￰22￱ those interested in more direct exposure to the dollar debasement trade, investors may consider the Quantify Funds STKd 100% Bitcoin & 100% Gold ETF ( BTGD ).

TradingView One interesting phenomenon is that FDIG has moderate directional correlation to the price of bitcoin, suggesting that the holdings’ diversification into other markets and the stability of payment services may provide differentiated exposure relative to ￰23￱ This can be an appealing feature given that bitcoin may exhibit significant volatility during periods of market stress, potentially providing investors in FDIG more stability over longer holding ￰24￱ Comparing peer strategies, FDIG is one of the lower-cost strategies with an expense ratio of 40 ￰25￱ closest alternative in terms of fees is the Schwab Crypto Thematic ETF ( STCE ) with a 30 bps expense ￰26￱ Alpha Comparing performance, FDIG has significantly underperformed peer strategies when comparing 1-year and 3-year historical ￰27￱ Alpha Taking into consideration the holdings in STCE, the portfolio exhibits similarities to holdings in FDIG, but with significant differences in weighting and the top 10 ￰28￱ example, the top holding in STCE is Cipher Mining ( CIFR ) at 9.91%.

CIFR is held in FDIG at a much lower weight of 3.08%. TradingView Risks Related To FDIG FDIG is a thematic portfolio strategy that exposes investors to the cryptocurrency market, exposing them to certain risks that must be considered prior to making a final investment decision. Cryptocurrency-related companies’ shares have historically performed similarly to the price of bitcoin, potentially exposing investors to certain correlation risks if the price of bitcoin were to ￰29￱ price of Bitcoin has historically exhibited significant volatility over short periods of time and may impact the overall performance of ￰30￱ has $349mm in net assets, with an average of $4.8mm in share value changing hands on a daily basis, potentially exposing investors to some liquidity ￰31￱ may expose investors to additional trading fees with an average bid/ask spread of 88 bps, resulting in higher costs of actively managing a ￰32￱ Thoughts FDIG can be an appealing strategy to gain exposure to the cryptocurrency market while investing in operating companies rather than directly into the tokens or ETFs holding the ￰33￱ can be used as an indirect AI or dollar debasement strategy given its exposure to the cryptocurrency ￰34￱ for positioning, I believe FDIG will be best utilized as a satellite position as part of a diversified portfolio ￰35￱ most, I believe a 2% allocation to FDIG or STCE would provide adequate exposure to the ￰36￱ the two strategies, STCE may be more optimal given its historical performance and lower ￰37￱ the risks involved in the strategy, I am recommending FDIG with a Hold rating.