Cryptocurrency ETFs, or exchange-traded funds, are growing in popularity. Beginner and expert traders alike are considering adding crypto ETFs to their investment portfolios. They can enjoy the versatile benefits of an ETF that tracks one or more crypto prices. Of course, just how successful a crypto ETF is for an investor depends on its characteristics.
Selecting the best ETF for your crypto portfolio is crucial in reaping its rewards. The wrong ETF won’t mesh with your financial goals or support your investment strategy, causing major losses. In this article, we’ll provide you with valuable insights into the crypto ETF market. Walk through these pivotal ETF features as you determine which choice works best to boost your crypto profits.
A crypto ETF or exchange-traded fund is a type of investment security that tracks a specific crypto, or set of cryptocurrencies. ETFs have historically tracked the prices of many different assets, from cryptos to commodities. This means traders can expect their ETFs to fluctuate on a daily basis, influenced by sales and purchases in the market.
Traders can buy or sell ETFs on a daily basis if they want, or hold it long-term. Crypto investment firms will put together and manage ETFs for investors to buy. There are two main types of crypto ETFs. An investment firm might buy crypto and represent ownership of the digital assets as shares to back the ETF.
In this way, investors indirectly buy the cryptocurrency as well. Investors can avoid the risk of personally owning crypto, which is a key benefit of this kind of crypto ETF. Other crypto ETFs might track crypto futures contracts or other exchange-traded products. In this type of ETF, investors are tracking other traders’ bets on future crypto prices.
Using either type of crypto ETF gives traders the advantage of gaining exposure to these digital assets. They can simultaneously avoid extra charges, like digital wallet fees. Another advantage is security - sometimes, digital wallets, crypto accounts, or even exchanges are hacked. With ETFs, tight security is provided by the firms that manage them. ETFs are also very accessible to traders, allowing them to bypass complicated crypto jargon and act as a more affordable option.
Of course, ETFs also pose certain risks. ETFs sometimes aren’t as transparent as owning crypto outright. The third-party investment firm may not provide accurate and detailed information about their operations. ETFs are also not as liquid as actual cryptos - meaning it’s harder to turn them into cash.
Suggested reading: Market Liquidity (What is it and how to measure it?)
It’s crucial to find reputable ETF providers to keep your investments secure. There are many options available for traders to choose from. Before a firm can provide crypto ETFs, they have to submit an application to the SEC (U.S. Securities and Exchange Commission). The agency is very strict with its approvals for crypto ETFs. They’ve denied many applications for reasons such as low liquidity and potential market manipulation.
However, cryptocurrencies are becoming more mainstream and the public is embracing digital assets. With this, SEC and investors alike are more open to ETFs. Research ETF providers that have a stable and transparent historical performance. Ensure that they’re open about their regulatory status with the SEC.
There are multiple factors to consider when buying a crypto ETF.
Let’s examine some of the most notable crypto ETFs in the market at the time of writing.
VanEck is a major player in crypto ETFs, with this particular ETF focused on Bitcoin futures. Launched in 2021, this actively managed ETF uses US Treasuries as collateral. It has around $47 million under management and a low expense ratio of just 0.66%. It trades at $24.92, currently.
This ETF launched in 2021 tracks a market-cap-weighted index of multiple companies involved in blockchain technology and crypto. These include Coinbase, Marathon Digital Holdings, and Hut 8 Mining Corporation. With nearly $61 million in assets under management, the ETF is trading at $26.72. Its expense ratio is very affordable, at just 0.50%.
ARK is an actively managed ETF with holdings in a broader range of digital asset companies. Though it has a large holding in Coinbase (17.9%), it also provides exposure to other Web3 tech. This includes cloud computing, AI, and cybersecurity. It holds a net asset value of $58.84 and a YTD NAV return of 74%. However, the ETF has a higher expense ratio of 0.88%.
Crypto ETFs are an incredible option to add to modern investment portfolios. They provide exposure to cryptocurrencies and related blockchain technologies to new and veteran traders alike.
They’re also a great way to diversify your portfolio and step into buying and managing ETFs is also largely passive, freeing investors up for other activities. Before diving into the world of crypto ETFs, explore and compare the top performers that appeal to you. If you read about the assets your ETF tracks, and how they’ve performed since their inception, you’ll successfully navigate the world of crypto ETFs.