What is a Cryptocurrency ETF?

A cryptocurrency ETF is an exchange-traded fund whose price is tied to one or more digital assets. Crypto-ETFs make it easier for institutional and individual investors in the stock market to buy and sell crypto-currency investments.

What are ETFs?

An “ETF” is a mutual fund whose shares are traded on an exchange. A fund is a legal organization that has an asset or a group of assets on its balance sheet. This asset or group of assets is put together based on certain rules. It could include stocks, bonds, currencies, stock indices, valuable goods, and so on.

Each ETF share is backed by a certain amount of the assets of the fund. So, the person who owns the ETF invests in the fund’s portfolio, but doesn’t own the fund’s assets directly.

Companies with special skills make funds. They also keep track of them and do things like rebalance them if necessary and keep records. BlackRock, Vanguard, State Street, Invesco, iShares, and Charles Schwab are the biggest ETF companies in the world.

Are ETFs Useful?

One of the main ways to invest today is through exchange-traded funds. Informa Financial Intelligence says that the total amount of money in ETFs will be more than $10 trillion by November 2021. In 2018, this number was $5 trillion.

This is a good way for institutional investors to invest without doing anything. ETFs are different from active strategies in that their owners don’t have to hold and trade the assets themselves. They also have a simple legal structure and show more stable long-term results.

A retail investor can quickly and easily diversify their portfolio with an ETF. This is because the fund is made up of a large number of assets. Lastly, management fees for ETFs are much lower than those for investment funds.

Why do cryptocurrencies need an ETF?

Not all big investors are ready to buy digital assets directly because the legal system isn’t good enough and it’s hard to store them. ETFs would then become a common and easy way to get into the cryptocurrency market.

An ETF has a well-known legal structure and works in the same way as other financial products. It is also a very liquid instrument that can be put on the largest stock exchanges in a short amount of time. This means that both institutions and regular people can invest in cryptocurrency. The operator of the exchange-traded fund is in charge of holding the underlying asset.

How to Buy a Cryptocurrency ETF?

To buy exchange-traded funds, you need access to the trading floors of the countries where crypto-ETFs are traded. Most likely, you will need a bank account and the help of a broker to do this. ETFs are like ordinary shares in that they have the same status. This means that a wide range of investors can buy them.

Another way is to use a trading platform like Interactive Brokers or Freedom Finance that gives you access to a lot of markets.

What Crypto ETFs are Being Traded?

Today, exchange-traded funds that are indirectly related to the blockchain industry are traded in different countries. For example, there are ETFs whose price is tied to a basket of shares of public crypto companies. But ETFs that are based on cryptocurrencies themselves are getting a lot of attention. In this case, the fund operator buys digital assets for the fund, which increases demand on the cryptocurrency market. The price of these instruments is based on how much crypto assets are worth at the moment.

The United States is the most likely market for a spot crypto ETF. Since 2018, a lot of companies have asked the SEC to register an exchange-traded fund. But the regulator has not yet given its OK to any of these instruments.

In February 2021, Canada was the first country in North America to launch a spot bitcoin ETF. It is called Purpose Bitcoin ETF, and it is traded on the Toronto Stock Exchange. The money in the fund is more than $800 million.

ETFs with indirect ties to the cryptocurrency market are also traded in different countries. ProShares’ Bitcoin Strategy ETF (BITO) is one of the most well-known. It was approved by the SEC and put on the New York Stock Exchange at the end of 2021. Bitcoin futures contracts have been traded on the Chicago Mercantile Exchange since 2017. This is what BITO is based on. By the end of May 2022, the fund will have about $1 billion in it.

After the SEC approved similar exchange-traded funds at the end of 2021, VanEck and Valkyrie Investments put them on the market. The regulator gave Teucrium permission to start trading its futures bitcoin ETF in April 2022.