What are crypto ETFs and where can you buy them?

ETF stands for Exchange Traded Fund and is a well-known investment product that represents the value of other products. ETFs have been traded on stock markets for decades (since 1993).

An ETF tracks the price of other investment products, such as commodities or funds. For example, you can buy an ETF that tracks the gold price or AEX. ETFs can also follow indices. You might not immediately think of cryptocurrencies, although these days it is also possible to invest in Bitcoin ETFs or other crypto ETFs.

Crypto ETFs are investment products that track the value of cryptocurrencies. These can be specific cryptocurrencies, such as Bitcoin or Ethereum. Other ETFs track a selected group of cryptocurrencies. Let's take a look at the usefulness of crypto ETFs and where it's best to buy crypto ETFs.

Why use crypto ETFs?

ETFs are very useful because ETFs allow traders to speculate on the prices of products that are normally quite difficult to trade. For example, an ETF can represent the value of a group of stocks or cryptocurrencies. You then no longer have to manually buy a large number of products, but merely buy the ETF to speculate on the value of a larger number of products.

ETFs are also widely used to speculate on commodity prices. It is then not necessary to purchase a physical gold bar or oil barrel to invest in these products.

Crypto ETFs, in particular, are very useful. And there are several reasons for this. For one, crypto ETFs are available on the stock market. These ETFs track the price of a specific cryptocurrency, such as Bitcoin. You can then speculate on the price of Bitcoin from the stock market, without creating an account with a crypto exchange. But a crypto ETF also allows you to invest in larger amounts of crypto without having to buy them manually.

Not your keys, not your crypto

Keep in mind that when you buy an ETF, you are not the owner of the underlying product. You are merely buying a product that tracks the value of another investment product. If you own a Bitcoin ETF, you do not actually own Bitcoin. Therefore, it is important that the value of the ETF is sufficiently covered.

Why should you invest in crypto ETFs?

But why would you actually buy a crypto ETF when you can also buy the same cryptocurrencies at a crypto exchange like Coinmerce? Crypto ETFs are practically useful when you want to invest in a basket of cryptocurrencies, without purchasing the cryptocurrencies manually.

Investing in ETFs is easier

Suppose you want to invest in the 20 most popular DeFi cryptocurrencies. You can then look for the largest DeFi cryptocurrencies based on market capitalization (the total value of the cryptocurrency, which can be calculated by multiplying the price by the number of tokens in circulation). You then purchase these tokens all manually. You can probably imagine that quite a bit of time goes into this.

Then you also have to monitor the cryptocurrencies all manually. Do you want to sell the DeFi coins? That also has to be done manually.

A crypto ETF could offer a solution. For example, you could also buy an ETF that tracks the average price of the 20 largest DeFi cryptocurrencies. The principle is the same, only in this case you only need to buy one product. This will not only save you a lot of time, but will also provide more overview within your portfolio.

Spreading contributes to better risk management

Crypto ETFs are ideal for bringing more spread within your portfolio. Diversification is an important part of risk management. How that works can be better understood with the following example.

Suppose you have two cryptocurrencies running in the same sector (the metaverse, for this example). Then interest in the metaverse drops. The first cryptocurrency drops 30% in value, while the second cryptocurrency drops about 20% in value. Your entire portfolio now has an unrealized loss of 25% on average.

You can reduce the average loss by spreading out. Suppose you buy one or two cryptocurrencies per niche, and one niche collapses, then the decline in value of these cryptocurrencies is still absorbed by the value of other cryptocurrencies (which do not or less rapidly decline in value). Spreading can therefore limit the loss.

Perfect for beginners

ETFs can serve as an ideal investment product for novice investors. If you are just starting to invest in crypto, then you often have little knowledge and experience within the crypto market. Doing research and choosing the right cryptocurrencies is difficult. A lot of time goes into this, and you often lose a lot of money before an investment becomes profitable.

Buying a crypto ETF still requires research, but it is a lot easier than investing in specific cryptocurrencies. Many beginners therefore prefer investing in ETFs. Experienced investors also choose ETFs when they have little time to devote to research. Buying an ETF can be less risky than buying a specific cryptocurrency because it tracks the average value of the largest cryptocurrencies.