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 assets. ETFs have been traded on stock markets for decades (since 1993).
An ETF tracks the price of other investment products, such as commodities, funds, or indices.
For example, you can buy an ETF that tracks the price of gold or the AEX index. While cryptocurrencies
may not be the first thing that comes to mind, it is now also possible to invest in Bitcoin ETFs
and other crypto ETFs.
Crypto ETFs are investment products that track the value of cryptocurrencies. Some focus on a single
cryptocurrency, such as Bitcoin or Ethereum, while others track a selected group of cryptocurrencies.
Let‘s take a closer look at the purpose of crypto ETFs and where you can buy them.
In short
- A crypto ETF tracks the price of one or more cryptocurrencies.
- You buy a listed financial product, not the cryptocurrencies themselves.
- Bitcoin ETFs and other crypto ETFs are available via traditional investment platforms.
- Crypto ETFs offer simplicity and diversification, but also come with limitations.
- The ETF structure determines risks, costs, and potential returns.
What is the purpose of an ETF?
ETFs are useful because they allow investors to gain exposure to assets that are otherwise
difficult to trade directly. An ETF can represent the value of a group of stocks or cryptocurrencies,
meaning you don‘t need to buy each asset individually.
ETFs are also widely used to gain exposure to commodities. Instead of purchasing physical gold
or oil, investors can buy an ETF that tracks their prices.
Not your keys, not your crypto
When you buy an ETF, you do not own the underlying asset. You only purchase a product that tracks
the value of another investment. If you own a Bitcoin ETF, you do not actually own Bitcoin.
This makes it important that the ETF is sufficiently backed.
Why is this important?
Within crypto, ownership is normally linked to private keys. With an ETF, responsibility for storage,
security, and management lies entirely with the fund provider.
Why invest in crypto ETFs?
Why would you buy a crypto ETF if you can also purchase cryptocurrencies directly on a crypto platform
such as Coinmerce? Crypto ETFs can be practical if you want exposure to a basket of cryptocurrencies
without manually buying each one.
Investing in ETFs is simpler
Imagine you want to invest in the 20 most popular DeFi cryptocurrencies. You would first need to research
which assets qualify, then buy each one separately. This process can be time-consuming.
You would also need to monitor each cryptocurrency individually and manually manage selling decisions.
A crypto ETF can simplify this process by allowing you to buy a single product that tracks the average
price of those assets.
Easier diversification supports better risk management
Crypto ETFs make it easier to diversify your portfolio. Diversification is an important part of
managing risk.
For example, if you hold two cryptocurrencies within the same niche, such as the metaverse,
both could decline at the same time if interest in that sector drops. By spreading exposure
across multiple sectors, overall risk can be reduced.
Ideal for beginner investors
ETFs can be suitable for beginner investors. If you are new to crypto investing, selecting
individual cryptocurrencies can be challenging. An ETF often tracks the average value of
multiple assets, reducing the impact of individual price swings.
What are the advantages of a Bitcoin Spot ETF?
Access via a traditional investment account
A Bitcoin Spot ETF can be purchased through a regular investment account. This allows investors
to gain exposure to Bitcoin without using a crypto exchange or wallet.
Simplicity and potentially lower barriers
Bitcoin Spot ETFs operate within existing regulatory frameworks. For many investors,
this feels familiar and transparent, lowering the barrier to gaining exposure to Bitcoin.
Key risks and limitations
While Bitcoin Spot ETFs offer convenience, risks remain. You do not own Bitcoin directly
and are dependent on the ETF provider. Costs, structure, and tracking errors can also
affect overall returns.
How does it work?
Spot vs futures explained
A spot ETF directly tracks the market price of Bitcoin or other cryptocurrencies
by holding the underlying assets. Futures ETFs use derivative contracts,
which can lead to price deviations.
How is the price tracked?
The price of a crypto ETF is based on the value of the underlying assets minus fees.
With futures ETFs, contract rollovers and market conditions can also influence performance.
Frequently asked questions
What are the potential effects on the Bitcoin price?
The introduction of Bitcoin ETFs can change how investors access Bitcoin.
Because ETFs are available via traditional investment platforms, Bitcoin becomes
more accessible to investors who previously avoided direct exposure.
This increased accessibility does not automatically mean that the Bitcoin price will rise.
Bitcoin‘s price remains influenced by factors such as market sentiment, macroeconomic conditions,
interest rates, and regulation.
In the short term, ETF-related announcements can increase volatility.
Over the long term, a broader range of investment vehicles may contribute to a more mature market,
while also introducing new dynamics driven by traditional financial institutions.
Who are the US providers?
In the United States, several large asset managers offer crypto-related ETFs,
including Bitcoin ETFs. These providers operate within a regulated framework
and primarily serve institutional and retail investors using traditional investment accounts.
Well-known names include BlackRock, Fidelity, ARK Invest, and Grayscale.
These firms have decades of experience managing funds and ETFs and have expanded
their expertise into digital assets.
Each provider uses its own fund structure, fee model, and approach,
which can result in differences in tracking accuracy and risk profiles.