On the 30th of January, the Innovation Shares NextGen Protocol ETF (ticker KOIN) began trading on the NYSE Arca. It is the first exchange-traded fund using artificial intelligence (AI) to identify and invest in blockchain companies. The Innovation Shares NextGen Protocol ETF (KOIN) uses a natural language processing algorithm to screen for stocks with economic interests in blockchain technology. KOIN’s underlying index and technology would uncover companies that traditional analytical research may overlook.The idea for an ETF fund with both AI and blockchain technology came from hedge fund Pinz Capital Management LLC and ETF industry veteran Matt Markiewicz, the current managing director of Innovation shares. "Blockchain is a highly innovative technology, and we're applying an innovative approach to identifying the stocks leveraged to the theme,” said Markiewicz. KOIN is the fourth blockchain ETF to enter the market this month.
KOIN uses an AI algorithm that determines a list of companies based on market capitalization and liquidity measures. AI organizes scans through information concerning keywords, company names, and levels of sentiment. Once the companies are organized, they are sorted into four stakeholder buckets: digital currency payees, mining enablers, solutions providers and blockchain adopters. The companies are also ranked in their categories; as many as 15 are in each bucket."Our proprietary patent-pending AI based process allows us to better capture a full range of publicly traded companies that are developing, investing in and utilizing this new protocol," said Markiewicz. “One of the tough things about identifying stocks in thematic investing is that themes often don’t show up in financials,” he added. “Themes also span borders and cross sectors, so the traditional fundamental and analytical process is sort of tough to employ when you’re building an index looking to capture a certain theme. With the process that we take and employ, by using an algorithm, we’re able to harness the power of A.I”According to the prospectus, companies in the index must also have a minimum market value of $100 million and “a minimum average daily traded value for the last six months greater than or equal to $1 million.”
KOIN currently faces tough competition in the blockchain ETF space. KOIN is competing against the Amplify Transformational Data Sharing ETF (ticker BLOK) which launched on January 17th. The Reality Shares Nasdaq NexGen Economy ETF (ticker BLCN) also debuted on the same date, adding further competition. On top of that, the First Trust Indxx Innovative Transaction & Process ETF (ticker LEGR) also launched last week.“Our value proposition is that natural language processing and AI has been around for more than a decade in the hedge fund space,” said Andrew Kim, a shareholder in Innovation Labs through an interview with Bloomberg. Although KOIN’s shareholders are optimistic, according to Matt Schreiber, president and chief investment strategist at WBI Investments, investors should not take names for granted but instead look into what the ETFs are actually holding.Image credit: maxpixel
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