Crypto ETFs: The Complete Guide for Investors

Crypto ETFs: The Complete Guide for Investors

Here’s what you need to know about investing in cryptocurrency ETFs.

ETF
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Reviewed by: James Rubin
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Edited by: Kent Thune

The cryptocurrency market has surged in popularity, but directly owning and managing cryptocurrency, also called digital assets, can be complex and intimidating. Crypto ETFs promise a smoother ride, allowing investors to participate in the cryptocurrency market without the daunting experience of managing individual cryptocurrencies, of which there are hundreds. 

This guide will equip you with the knowledge to navigate this exciting, but potentially volatile, world of cryptocurrency exchange-traded funds.

Types of Crypto ETFs

Like other ETFs with which you may be more familiar, such as stock or bond ETFs, crypto ETFs are baskets of assets that trade on major stock exchanges. However, instead of holding traditional stocks or bonds, these ETFs hold various cryptocurrencies or other assets tied to the cryptocurrency industry. This lets investors buy a single share of the ETF and gain diversified exposure to the crypto market, bypassing the need to purchase and store individual cryptocurrencies.  

There are several types of cryptocurrency ETFs that cater to different risk tolerances, investment goals and strategies:

  • Spot bitcoin ETFs: These ETFs launched in January 2024 and directly hold bitcoin, aiming to mirror the price performance of the world’s largest cryptocurrency by market capitalization. They provide the most straightforward way to gain exposure to bitcoin through a traditional brokerage account.
  • Futures-based bitcoin ETFs: These bitcoin ETFs don't hold actual cryptocurrency, but rather futures contracts that track its price. This allows investors to gain exposure to bitcoin's price movements without the security risks of holding the cryptocurrency itself.
  • Ethereum ETFs: Until spot Ethereum ETFs begin trading, investors can buy futures-based Ethereum ETFs, which track the price of Ethereum using futures contracts instead of holding the actual cryptocurrency.
  • Cryptocurrency basket ETFs: Offering diversification, these ETFs hold a basket of various cryptocurrencies, potentially mitigating the risk associated with a single cryptocurrency. The specific makeup of the basket varies, but usually includes bitcoin and ether, the native cryptocurrency of the Ethereum smart contracts blockchain.  
  • Blockchain technology ETFs: These ETFs don't directly invest in cryptocurrencies but instead focus on companies involved in blockchain technology, the underlying infrastructure powering cryptocurrencies. This offers exposure to the potential growth of blockchain without the direct volatility of the crypto market itself.
  • Crypto miner ETFs: Sometimes categorized with blockchain ETFs, these funds invest in companies that use computer hardware and software to validate cryptocurrency transactions, offering investors exposure to the crypto market without directly buying cryptocurrencies.
  • Leveraged crypto ETFs: These ETFs use financial instruments to magnify the returns of underlying cryptocurrencies, aiming for amplified gains compared to directly holding crypto. However, these complex products are known for their high volatility and risks as losses are also amplified.

Benefits of Crypto ETFs

  • Accessibility: ETFs allow you to invest in cryptocurrencies through a familiar brokerage account, eliminating the need for a separate account at a crypto brokerage.
  • Diversification: Some crypto ETFs—like cryptocurrency basket ETFs and blockchain technology ETF— offer diversification across the crypto market, reducing your risk compared to holding a single cryptocurrency.
  • Regulation: ETFs are regulated by financial authorities, potentially offering a safer alternative to unregulated crypto exchanges.
  • Liquidity: ETFs trade on stock exchanges, providing greater liquidity compared to some individual cryptocurrencies.

The Risks of Crypto ETFs

  • Volatility: The cryptocurrency market is inherently volatile, and ETF prices will reflect that volatility. Be prepared for significant price swings.
  • Limited track record: Some crypto ETFs, like spot bitcoin exchange-traded funds, are new products. While they offer a convenient way to invest in bitcoin, their long-term performance remains unclear. Indirect Exposure: Some ETFs don't directly hold cryptocurrency but invest in related companies or technologies. This offers less direct exposure to the price movements of cryptocurrencies themselves.

Considerations Before You Invest in Crypto ETFs

  • Investment goals: Clearly define your investment goals and risk tolerance. Crypto ETFs are suitable for investors comfortable with volatility and seeking exposure to the potential growth of the crypto market.
  • Research the ETF: Before investing in any ETF, thoroughly research its holdings, expense ratio, and investment strategy. Understand the specific risks associated with the underlying assets.
  • Start small: Due to the volatility, consider starting with a small investment to test the waters and gain experience before committing a larger amount.
  • Diversification: Don't rely solely on cryptocurrency ETFs for your portfolio. Maintain a diversified portfolio with a mix of asset classes to mitigate risk.

Find the Right Cryptocurrency ETF

etf.com has plenty of resources to help you find the right crypto ETF. Our cryptocurrency topics page currently lists 46 ETFs tied to the industry. There you can see that the $20 billion iShares Bitcoin Trust (IBIT) is currently the largest spot bitcoin ETF, while the $2.2 billion ProShares Bitcoin Strategy ETF (BITO) is the largest bitcoin futures ETF.

The $1.7 billion Volatility Shares 2x Bitcoin Strategy ETF (BITX) is the most popular leveraged bitcoin ETF.  

Other notable funds include the $133 million Bitwise Crypto Industry Innovators ETF (BITQ), which holds stocks of companies involved with crypto generally and the $102 million Valkyrie Bitcoin Miners ETF (WGMI), which holds stocks of companies involved in processing bitcoin transactions specifically.

While there are currently no spot ether ETFs on the market today (they are expected to launch in the coming weeks), the $93 million ProShares Ether Strategy ETF (EETH), which holds ether futures, is the next closest thing.

The $57 million Valkyrie Bitcoin and Ether Strategy ETF (BTF) holds a combination of bitcoin and ether futures, giving investors diversified exposure to the two digital assets.  

Click through to individual fund pages to learn more about the ETFs mentioned here as well as the others on our list.

You can also use etf.com’s fund screener to further narrow down your search.  

The Bottom Line on Investing in Crypto ETFs

Crypto ETFs offer a convenient, potentially rewarding way to gain exposure to the crypto market. However, they come with inherent risks associated with the volatile nature of cryptocurrencies.  

By understanding the different types of ETFs available, their benefits and drawbacks, and carefully considering your investment goals and risk tolerance, you can make informed decisions about incorporating crypto ETFs into your investment portfolio. 

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