Cryptocurrency ETFs: Everything You Need to Know
Cryptocurrency and blockchain technology has skyrocketed in popularity. In just a few years, crypto has gone from an obscure niche interest to a worldwide phenomenon. And as more people become interested in investing in cryptocurrency, there’s been an increasing demand for cryptocurrency-based exchange-traded funds (ETFs).
Cryptocurrency ETFs are designed to track the performance of a specific cryptocurrency or group of cryptocurrencies. They provide investors with a means to obtain exposure to the cryptocurrency market without buying and managing individual currencies. And because they’re traded on major exchanges like the NYSE and Nasdaq, they’re much more accessible than traditional cryptocurrencies.
However, there are a few things to keep in mind before investing in a crypto ETF. First, because the cryptocurrency market is still relatively new and volatile, crypto ETFs can be subject to significant price swings. Second, many crypto ETFs are actively managed, which means they come with higher fees than traditional index funds.
So, should you invest in a cryptocurrency ETF? That’s ultimately up to you. However, ETFs could be worth considering if you’re seeking a strategy to gain exposure to the expanding cryptocurrency sector. First, remember to conduct your research before making any selections.
Top 5 Crypto ETFs
1. 21Shares Bitwise Select 10 ETP (SW: KEYS)
21Shares offers various exchange-traded products (ETPs) that track different types of cryptocurrencies. An ETP is a fund that trades on a stock exchange, such as an ETF.
This fund owns the ten largest cryptocurrencies by market capitalization. It means that it has a diverse range of options. The fund rebalances its portfolio every month. It means that it changes which coins it holds based on any changes in the market. It is an excellent way to get your hands on the most popular cryptocurrencies.
Most of this list’s crypto ETFs are primarily composed of Bitcoin and Ethereum. The top two comprise 90% of the assets–but investing in them would also provide exposure to altcoins such as Litecoin and Cardano.
2. 21Shares Crypto Basket Index ETP (SW: HODL)
The second 21Shares offering is different because it owns five of the largest cryptocurrencies. It is based on their projection of what the market will look like in 2050. You’re betting on the projection’s accuracy and the bitcoin market’s volatility, which is riskier.
However, because it attempts to forecast the future, it is one of the more intriguing funds accessible. While Bitcoin is the largest holding, it is not as dominant a part of this fund as in others on this list. Bitcoin makes up about 40% of the total, while Ethereum and Polkadot each account for 20%.
The price history for all of these ETFs is limited. This one is no exception. It’s only been in business since Spring 2021, and its pricing has shifted dramatically. It is normal for any crypto ETF, but this fund allows you to overlook that in favor of a more long-term approach.
3. Purpose Bitcoin ETF (TSE: BTCC)
The Bitcoin ETF was the world’s first Bitcoin ETF. It is a way to own the cryptocurrency without needing to use a specialist exchange or get your wallet. The ETF trades like a stock, so its price increases and falls in tandem with the coin’s value.
Bitcoin is the only thing in this fund, so it’s more volatile than a normal fund. This fund relies on Bitcoin’s performance, but that’s also its main attraction because ETFs are much more regulated and easy to use than the cryptocurrency market.
You can buy a share in a Bitcoin ETF for a few dollars. That share’s price will change dramatically over time – Bitcoin often rises or falls by more than 10% daily. But even though the share price may change, it allows you to profit from an increase without committing a substantial amount of money.
4. ETF for Bitwise Crypto Industry Innovators (NYSEARCA: BITQ)
The Bitwise Industry Innovators ETF is different from the others on this list so far because it invests in companies that are involved with cryptocurrency. This ETF is more like a traditional ETF, which tracks the performance of the crypto industry.
Bitwise owns many different companies that are all related to the crypto economy. These companies work on developing new technology to help the crypto economy grow. Bitwise also has stocks in companies that are quite different from each other.
The investment company owns a software company called Coinbase. It also has businesses that specialize in app development and bitcoin mining. It means it is not just relying on the coin market to grow.
5. ETF for the Grayscale Future of Finance (NYSE: GFOF)
Grayscale is a company that invests in cryptocurrencies. They are now entering the ETF market with their new Future of Finance ETF. This ETF is different from other funds because it invests in shares of companies rather than cryptocurrencies.
GFOF makes direct investments in enterprises involved in the digital economy. It includes businesses building out the infrastructure for decentralized finance (Defi). Such as Coinbase and PayPal and companies involved in cryptocurrency mining.
The primary purpose of this exchange-traded fund (ETF) is to promote the growth of a financial system that uses blockchain technology. This crypto ETF owns shares of firms and is well-managed by Grayscale, so that it may be excellent for decentralized finance enthusiasts (Defi).
Where to Buy the Best Crypto ETFs
An online broker is required to purchase an ETF. A good broker lets you buy stocks from many different countries. The table below includes some good brokers that let you do this.
CFDs are a type of investment that can lead to you losing money quickly. You should only put money into them if you understand how they work and can afford to lose them. Our research shows that around 72% to 74% of people who invest in CFDs with this provider lose money.
CFDs trading is a high-risk investment. You could lose all of your money if you’re not careful. Before investing, make sure you understand the dangers and make efforts to mitigate them.
What is a Cryptocurrency ETF?
An exchange-traded fund is a fund that buys assets related to cryptocurrency. It can include coins or stocks in companies exposed to the cryptocurrency market. The price of these funds increases depending on how well cryptocurrency is doing overall.
Are Crypto ETFs a Good Investment?
It all depends on what you want to achieve when you invest. However, investing in cryptocurrency can also be a low-risk, low-maintenance way. They are more like investing in cryptocurrency through a regulated process instead of owning the coins yourself.
However, ETFs are an excellent way to get exposure to cryptocurrency without going through buying and storing coins. ETFs are easy to access and remove the difficulty of picking which coin you expect to perform best. More funds will emerge over time, offering new methods to participate in cryptocurrency. If you want to wait for more information, keep your eye on the latest crypto news. Or you could sign up with a broker now to start investing immediately.
Best Crypto ETFs To Invest In
Cryptocurrency ETFs are an excellent way for investors to get exposure to cryptocurrency and blockchain-related assets. These products come in many different forms, but all offer investors a way to invest in the growing cryptocurrency market without managing their investments.
Cryptocurrency ETFs are becoming more popular. They are moving from the fringes of financial markets to the main stage. It is happening because stock exchanges, like the NASDAQ and Chicago Mercantile Exchange (CME), and leading fund providers, like Fidelity and VanEck, are getting involved.
Why Invest in Crypto ETFs?
Cryptocurrency ETFs offer a way to diversify your portfolio. It is because they are based on a basket of assets. It helps reduce your investment risk if one of the assets fails. Some of these ETFs also track other ETFs, providing an even greater level of diversification.
Cryptocurrency ETFs can help small-scale retail investors to diversify their portfolios. These investors tend to have a lot of money in traditional stocks and bonds, which might not be as good of an idea as having exposure to emerging areas like crypto. These investors can benefit from portfolio diversification by investing in cryptocurrency ETFs.
Hands-Off Approach to Investing
ETFs are similar to index funds. They both track the performance of a particular asset. However, ETFs are managed by professionals, while index funds are not. Investors can benefit from the market’s growth without worrying about managing their investments.
Cryptocurrencies are not regulated in some countries, but cryptocurrency ETFs are. It means that the rules for cryptocurrency ETFs are the same as for other stocks and financial products.
Cryptocurrencies are unregulated, so some cautious investors avoid them. Cryptocurrency ETFs traded on stock exchanges are a good way for these people to hold crypto-related assets without worrying.
Crypto coin ownership involves security risks because of hacker attacks on blockchain platforms. Some of these attacks have resulted in significant losses for coin holders. Investing in a cold crypto wallet rather than a hot wallet is critical to protect yourself from such attacks. With crypto ETFs, such security risks are considerably lower because the ETFs are held in cold wallets.
Naturally, investment funds and stockbrokers are not immune to cybersecurity threats. However, they are not targeted as often as blockchains are. The number of attacks on these entities is steadily increasing, which is a reminder of the risks involved in holding crypto.
The stock exchanges where the ETF funds are registered have some of the best security in the world. If Warren Buffett isn’t worried that his money will be stolen from those exchanges, you don’t have to worry.
Advantages of Crypto ETFs
Crypto ETFs are powerful and desirable financial tools for investors. There are many benefits to approving crypto ETFs, like improving the image of cryptocurrencies, causing prices to rise, making cryptocurrencies more secure, and allowing more people to invest in them.
Merging of Traditional Finance and Crypto
Even though the crypto market is worth more than $2 trillion, it pales compared to the tens of trillions of dollars. It is held by sizeable traditional hedge funds, mutual funds, insurance companies, and other institutions. For example, BlackRock, the world’s biggest investment fund, has over $10 trillion in assets.
Crypto ETFs could help bridge the crypto economy’s gap with the rest of the world’s economies. And having more people invest in cryptocurrencies could raise the value of Bitcoin and other cryptocurrencies.
An ETF is a type of investment that can hold more than one asset. For example, an Ethereum ETF could also have Bitcoin or Facebook stocks. It helps investors to diversify their portfolios and protect themselves from the risks of investing in a single asset. Furthermore, interacting with a regulated stock exchange makes it possible for investors to use their existing portfolios more effectively.
Cryptocurrency ETFs are a way for people to invest in cryptocurrency without worrying about buying, selling, and storing the virtual currency themselves. They also make it, so people don’t have to learn about the technology behind blockchain-based assets. Generally, crypto ETFs make it easier for people to invest indirectly in cryptocurrency.
Efficiency During Tax Filing
Cryptocurrencies are not regulated. Such big organizations like pension funds cannot allow people to buy them. There are, however, ways around this. People can buy cryptocurrencies through regulated platforms like stock exchanges. This way, the cryptocurrency ETFs can be taxed efficiently.
A further benefit of crypto ETFs is that regulated companies issue them. It means that non-crypto investors can feel more confident about investing in them because everything is closely monitored.
Disadvantages of Crypto ETFs
Cryptocurrency ETFs offer many benefits, but they also have some drawbacks. Some factors that are preventing their widespread adoption include:
ETFs Are Centralized
Cryptocurrencies have enabled independence from centralized financial institutions, such as central banks. In addition, they offer more privacy than government-issued currencies.
Cryptocurrencies offer many good reasons to invest, such as being able to keep your money safe and being able to trade quickly. However, by investing in a cryptocurrency ETF, you are preceding one of the primary benefits of cryptocurrency: decentralization. It means that a financial watchdog can watch over your investments, which removes some of the privacy benefits of cryptocurrencies.
People have been talking more about the “Not Your Keys, Not Your Crypto” movement in 2022. It is because events like the Celsius and Three Arrows Capital meltdown and Tether and Circle’s freezing of Tornado Cash-related USDT and USDC addresses caused much concern.
ETFs Are Costly to Manage
Cryptocurrency ETFs are convenient because they are easy to buy and sell. However, you have to pay a management fee. This fee is usually a percentage of the total amount of money you have invested in the ETF. So if you invest for a long time, the management fees will be high.
ETFs Are Not Tradable with Other Currencies
Cryptocurrencies like BTC, ETH, and others can be traded against each other on digital currency exchanges. However, crypto ETFs cannot be traded with other cryptos. Furthermore, a crypto ETF cannot be used to purchase goods and services, unlike the underlying cryptocurrency asset, which some merchants may already accept.
Accuracy Isn’t Guaranteed
Crypto ETFs can have more than one type of asset in them. It can include assets that are not crypto-related. But when the price of one asset goes up, the ETF price might not go up as much. That’s because other investments in the portfolio might affect how well it tracks prices. For example, if ETH goes up 60%, the ETF might only go up 45%. It is because it follows not just ETH but all of its assets.
Liquidity May Be a Risk
If the ETF fund manager sells short, the shareholders will have to pay the price. Additionally, as more investors are exposed to cryptocurrencies through ETFs, the prices of those cryptocurrencies are likely to change dramatically.
7 Best Crypto ETFs in the Stock Market
1. ProShares Bitcoin Strategy ETF (BITO)
The ProShares Bitcoin Strategy ETF is the first cryptocurrency ETF to be approved. It started trading in late October 2021 and quickly gained over $1 billion in investments. Similar to the Purpose Bitcoin ETF above, this product became famous thanks to its “first on the market” status.
The ProShares Bitcoin Strategy ETF is offered by ProShares, a company that provides ETFs and leveraged financial products. This ETF tracks the price of Bitcoin futures contracts. The fund is based on two Bitcoin futures contracts traded by the CME Group. One has a 63% share in the fund, and the other has a 37% share. The allocations to these contracts frequently change because of the short-term nature of Bitcoin futures contracts.
The ProShares Bitcoin Strategy ETF might invest in other assets, such as U.S. Treasury Bills and futures contracts. The fund is actively managed by ProShares and may change its investment strategy in the future. The fund’s expense ratio is 0.95%, which is lower than the Purpose Bitcoin ETF’s ratio of 1%.
2. CI Galaxy Ethereum ETF (ETHX-B.TO)
Some smaller funds might offer benefits such as better diversification or lower fees. The funds mentioned above, for example, are all based on tracking Bitcoin, either directly or through Bitcoin futures contracts, as is the case with the ProShares ETF. But if you want exposure to other leading crypto assets, other options are also available.
Canada’s largest investment firm, CI Financial, offers a crypto ETF based on the Ether cryptocurrency’s price. The CI Galaxy Ethereum ETF has among the world’s lowest management fees at 0.4%. It also has no minimum investment requirement.
The CI Galaxy Ethereum ETF launched in April 2021 and is available on the Toronto Stock Exchange. This ETF is a good choice for investors who don’t want to be limited to Bitcoin assets only and are looking for a low-cost way to get into the crypto ETF space.
3. CI Galaxy Multi-Crypto ETF (CMCX-B.TO)
It is another product that CI Financial has to offer. The CI Galaxy Multi-Crypto ETF is the name of this investment vehicle. Investors can gain exposure to both Bitcoin and Ethereum through this investment vehicle. This ETF is ideal for investors who want a balanced investment strategy that includes the world’s two most popular cryptos.
This fund invests in Bitcoin and Ethereum, as well as cash equivalents. It will help to reduce the overall volatility of your investment. Cash equivalents are a great way to do this, especially considering how volatile cryptocurrencies can be.
Currently, the fund has a lot of money invested in cash equivalent investments. It may be because the crypto market is not doing well right now. As the crypto market improves, more money will flow back into Bitcoin and Ethereum. The fund was created last February and has a management fee of 0.5%. It is a low fee compared to other products that invest in multiple cryptocurrencies.
4. Global X Blockchain and Bitcoin Strategy ETF (BITS)
The Global X Blockchain and Bitcoin Strategy ETF is a mix of stocks and futures related to the blockchain and cryptocurrency industries. It is offered by Global X, a company specializing in ETF products. The fund started trading on the NASDAQ in November of last year and has an annual management fee of 0.65%. Currently, the fund has over $7 million in assets under management (AUM).
The ETF is based on a Bitcoin futures contract traded on the CME. The rest is allocated to Global X’s other ETF product, the Blockchain ETF, which invests in stocks of digital, blockchain, and crypto companies. Some of its top holdings are cryptocurrency mining companies Marathon Digital, Riot Blockchain, and the Coinbase crypto exchange.
It is one example of an ETF that invests in another ETF product. It is a common way to invest in crypto ETFs and, generally, ETFs. It can be an excellent option for investors who want balanced exposure to Bitcoin and blockchain-based stocks.
Although many blockchains and digital industry companies are affected by Bitcoin’s price fluctuations, their stock prices may not be as volatile as the actual price of Bitcoin. Additionally, depending on the nature of their business, these stocks may outperform Bitcoin or futures during crypto market slumps.
5. Evolve Cryptocurrencies ETF (ETC.TO)
The Evolve Cryptocurrencies ETF is another product with a balance of Bitcoin and Ethereum holdings. It was launched in September 2021 by the company Evolve ETFs. The ETF is based on 68.7% of the company’s Bitcoin futures ETF and 31.29% of its Ethereum futures ETF.
The fund has over $19 million in assets. Evolve’s website indicates that the management fee is 0%. However, the actual fee payable by customers is 0.75%, linked to the expense ratios of the two ETFs that make up this product. It means that the fee is still among the most competitive in the industry.
6. Fidelity Crypto Industry and Digital Payments ETF (FDIG)
One of the most prominent asset managers in the world is Fidelity Investments. It offers many products related to crypto coins and Bitcoin futures.
The company manages an ETF product primarily based on companies’ stocks from the crypto, digital, and blockchain technology domains. The fund is designed to allocate at least 80% of its assets to stocks.
The Fidelity ETF has a management fee of just 0.39%. It is a low cost for this type of fund. It is an excellent choice for investors who want exposure to cryptocurrency but prefer funds based on stocks rather than coins.
7. VanEck Crypto and Blockchain Innovators UCITS ETF (DAPP)
This ETF is comparable to the product offered by Fidelity that was discussed earlier. It is provided by a prominent investment management company that focuses on cryptocurrencies and stocks of companies involved in blockchain technology. In April of 2021, VanEck Associates introduced its UCITS exchange-traded fund known as Crypto and Blockchain Innovators. It is available on the London Stock Exchange (LSE) and stock exchanges in three continental European countries: Germany, Switzerland, and Italy.
This fund invests in stocks of companies that work with crypto and blockchain technology. The top three companies the fund has invested in are Coinbase, a crypto exchange. MicroStrategy, a business intelligence products provider; and Marathon Digital Holdings, a company that provides technology for digital assets and mines crypto-currencies.
The fund has around $14 million. The management fee is 0.65%. Another excellent option for a crypto ETF product that is not tied to tracking coins is the VanEck ETF. It focuses on blockchain technology companies.
Crypto and blockchain ETFs are new product that has many benefits. But remember that they are still a high-risk investment. Even though cryptocurrencies are risky, many crypto ETFs are based on derivative products. It can add more risk for the investor.
None of the crypto ETF providers promise that you will make money. Your original investment might even go down. These products might be more volatile than regular cryptocurrencies.
Frequently Asked Questions About Cryptocurrency ETF
If you want to invest in Bitcoin ETFs, you can do so through your broker or advisor. Bitcoin ETFs are traded on markets such as the New York Stock Exchange ARCA and Nasdaq: ETF Proshares Bitcoin Strategy (BITO).
Vanguard users can invest in any bitcoin or cryptocurrency fund, including the Bitwise 10 Crypto Index Fund (BITW) and the Grayscale Bitcoin Trust (GBTC), to name a few. Customers can purchase stock in publicly traded bitcoin mining firms such as Riot Blockchain and Argo Blockchain.
There is currently one publicly traded cryptocurrency index fund. The Bitwise 10 Crypto Index Fund (OTC: BITW) was launched in 2017 and was originally only available to accredited investors. But it is now open to everyone.
There are currently no ether ETFs trading in the U.S. Investors can still consider the over-the-counter Grayscale Ethereum Trust (ETHE). They trade at a 25% discount to their net asset value or Canadian funds such as the Purpose Ether ETF (ETHH).
Bitcoin ETFs offer a way to invest in Bitcoin without directly owning the cryptocurrency. However, these funds could be risky if they hold many futures contracts. Investors should be careful when investing in volatile assets like cryptocurrencies.