Unlocking Value: The Rise of Underfollowed Digital-Asset ETFs in a Post-Regulatory Era

The digital asset ecosystem has entered a new phase of maturity. Regulatory clarity, institutional adoption, and technological innovation are converging to create a fertile ground for investors seeking exposure to crypto infrastructure. Yet, while major ETFs like iShares Bitcoin Trust (IBIT) dominate headlines, a cohort of underfollowed digital-asset-focused ETFs and closed-end funds (CEFs) offers compelling undervalued opportunities. These products, often overlooked by mainstream investors, are positioned to benefit from the next wave of growth in blockchain infrastructure, decentralized finance (DeFi), and tokenization.

The Case for Crypto Infrastructure

Bitcoin and Ethereum have long been the poster children of digital assets, but the real value lies in the infrastructure that supports them. Companies building blockchain networks, mining hardware, security protocols, and decentralized applications (dApps) are the unsung heroes of this ecosystem. For instance, firms like Riot Platforms (RIOT) and CleanSpark (CLSK) are critical to maintaining the energy efficiency and scalability of proof-of-work networks. Meanwhile, platforms like Coinbase (COIN) and MicroStrategy (MSTR) are bridging traditional finance with crypto, enabling seamless transactions and institutional-grade custody solutions.

The Amplify Transformational Data Sharing ETF (BLOK) and VanEck Digital Transformation ETF (DAPP) exemplify this trend. These funds aggregate exposure to companies at the forefront of blockchain innovation, including miners, exchanges, and infrastructure providers. As of May 2025, BLOK holds 48 companies, with 48.53% of its assets allocated to technology services firms like Coinbase and Accenture. DAPP, meanwhile, tracks the MVIS Global Digital Assets Equity Index, emphasizing firms with at least 50% revenue derived from the digital asset economy.

Undervalued ETFs with Infrastructure Alignment

While the broader market has priced in much of Bitcoin's gains, several ETFs remain undervalued relative to their underlying assets. Consider the NEOS Bitcoin High Income ETF (BTCI), which combines exposure to Bitcoin with a high-yield component. With a 21.95% dividend yield and 27.67% YTD growth, BTCI offers a rare combination of income and capital appreciation. Its 6-holding portfolio includes Bitcoin miners and infrastructure firms, making it a concentrated bet on the sector's profitability.

Similarly, the ProShares Ultra Ether ETF (ETHT), a 2x leveraged product, has surged 147.76% over the past month, outperforming both Ethereum and the S&P 500. Despite its volatility (beta of 30.92%), ETHT's low expense ratio (0.94%) and alignment with Ethereum's smart contract ecosystem make it a compelling play for traders seeking amplified returns.

The Regulatory Tailwind

2024 marked a pivotal shift in crypto regulation, with the U.S. SEC's approval of spot Bitcoin ETFs and the EU's MiCA framework providing much-needed clarity. This has spurred institutional inflows, with global crypto ETF AUM hitting $125 billion by year-end 2024. For underfollowed ETFs, this regulatory tailwind means reduced risk premiums and increased liquidity. For example, the Hashdex Nasdaq Crypto Index US ETF (NCIQ), which tracks a diversified basket of cryptocurrencies, has seen its assets grow from $143 million to $300 million in six months—a sign of growing institutional confidence.

Risks and Rewards

Investing in these ETFs is not without risk. The crypto market remains highly volatile, with Ethereum ETFs like ETHW and ETHV experiencing double-digit swings in a single week. Additionally, leveraged products like ETHT and BITU are structurally disadvantaged in sideways markets, eroding capital through compounding losses. However, for investors with a high-risk tolerance and a conviction in the long-term trajectory of crypto infrastructure, these ETFs offer asymmetric upside.

A Strategic Approach

To capitalize on these opportunities, consider a diversified approach:
1. Core Holdings: Allocate to low-cost, diversified ETFs like BLOK and DAPP for broad exposure to blockchain infrastructure.
2. Satellite Bets: Use leveraged or niche ETFs like ETHT and BTCI to amplify returns in a bullish market.
3. Income Focus: Prioritize high-yield ETFs like BTCI for passive income, though monitor their dividend sustainability during market downturns.

Conclusion

The crypto infrastructure space is at an inflection point. As regulatory frameworks solidify and institutional capital flows in, underfollowed ETFs are poised to outperform their more hyped counterparts. By targeting funds with strong alignment to miners, exchanges, and blockchain developers, investors can gain exposure to a sector that is both undervalued and essential to the future of finance. For those willing to navigate the volatility, the rewards could be substantial.

Investment Disclaimer: The views expressed herein are solely those of the author and do not constitute investment advice. Past performance is not indicative of future results. Always conduct your own due diligence before investing.