You’re not alone if you’re late to the game of cryptocurrency. Cryptocurrency has been around for over a decade, but the market continues to evolve. It can be challenging to keep track of all types of digital tokens, let alone manage successful investments. Although early crypto investors have boasted epic returns, the market is still growing and offers countless money-making opportunities.
Many investors have begun putting their capital into crypto ETFs (exchange-traded funds) as an alternative to purchasing individual tokens. These ETFs allow traders to yield cryptocurrency returns without picking out the best product, tracking crypto prices, or paying crypto ownership fees.
If you want to bring crypto investments into your portfolio without the extra costs and time commitments of owning digital tokens, consider purchasing shares of a crypto ETF.
What Are Cryptocurrency ETFs?
An exchange-traded fund (ETF) tracks a group of assets, also known as a basket, traded on exchanges like the National Association of Securities Dealers Automated Quotation (NASDAQ) system, the New York Stock Exchange, and the Toronto Stock Exchange. While traditional ETFs may consist of various stock or asset groups, crypto ETFs consist of cryptocurrencies and associated technology companies and track digital token and futures contract prices.
Whereas trading cryptocurrencies involves a steep learning curve for even the most experienced investors, crypto ETFs offer the luxury of sidestepping such confusion by generating money passively.
How Does a Crypto ETF Work?
Unlike cryptocurrencies, crypto ETFs consist of multiple holdings managed by fund managers and offer passive returns to investors. Each fund primarily works in one of the following three ways:
- Physical-backed: Investors can own cryptocurrencies indirectly through ETFs that purchase coins and sell shares of ownership. These kinds of ETFs offer investors a simple way to become familiar with the world of cryptocurrency that doesn’t present the usual ownership fees and risks of choosing a poorly performing token. Examples of ownership fees include custody, digital wallet, transaction, and network fees.
- Futures-backed: Instead of being backed by physical cryptocurrency, some crypto ETFs depend on futures contracts. A futures contract establishes an agreement to buy or sell assets at a fixed, agreed-upon price at a later date. Many traders find these types of ETFs valuable in providing returns without the risks of storing physical cryptocurrency.
- Stocks-based: Some crypto ETFs engage investors and traders with companies developing blockchain technology, which is the foundation of all cryptocurrencies. These funds provide relatively stable returns and exposure to many such companies.
Some crypto ETFs only have physical cryptocurrencies in their holdings, while others consist of technology companies, crypto futures contracts, and other related holdings. The five cryptocurrency ETFs on our list of those to watch for include all three types of ETFs.
How Does Crypto ETF Differ From Cryptocurrency?
You can think of investing in physical cryptocurrency like investing in gold, except crypto is a digital product, while gold is a tangible one. When you invest in gold, you must track current prices; the same is true for cryptocurrency. If the price drops significantly, you risk losing your investment.
A crypto ETF, on the other hand, provides passive returns because investors act as shareholders. Traders enjoy part of the profit without having to track prices, pay extra fees, or actively trade cryptocurrencies. Many physically backed crypto ETFs consist of more than one cryptocurrency, so returns won’t suffer drastically if one token’s price takes a nosedive.
Crypto ETF’s History
The CoinShares Bitcoin Tracker One became the first Bitcoin ETF publicly traded on a stock exchange in 2015. Despite many ETF applications reaching the U.S. Securities and Exchange Commission (SEC) following this success, crypto ETFs didn’t gain approval in the U.S. until October 2021. The SEC rejected many applications before this over security concerns and fraudulent practices.
This relatively new type of ETF gained momentum each month as more applications earned approval and regulatory improvements increased investors’ confidence.
Five Crypto ETFs To Watch Out For
Investors starting with cryptocurrency may be just as overwhelmed by ETF options as by the many kinds of digital tokens from which to choose. To help, we’ve provided a list of five crypto ETFs to watch out for this year. Please note that this list does not contain ETF picks, only references to help you understand your potential ETF options.
We recommend talking to a financial advisor before making any crypto ETF investments, especially if you are new to crypto investing. A professional can help you analyze your financial situation and make smart investments for long-term success.
1. ProShares Bitcoin Strategy ETF (BITO)
The groundbreaking ProShares Bitcoin Strategy ETF (BITO) was the first cryptocurrency ETF approved by the SEC and started trading in October 2021. The fund manager seeks capital appreciation through futures contracts rather than directly investing in Bitcoin.
The fund’s holdings consist of Bitcoin futures contracts, so its performance may not reflect the price of Bitcoin. As of July 2022, BITO holdings include U.S. treasury bills, Bitcoin indexes, and other assets totaling over $700 million.
2. Valkyrie Bitcoin Strategy ETF (BTF)
Less than two weeks after the BITO ETF launched on the New York Stock Exchange, the Valkyrie Bitcoin Strategy ETF (BTF) began trading on the NASDAQ Stock Exchange. This fund consists of Chicago Mercantile Exchange Bitcoin futures but does not offer the same liquidity as BITO, which is significantly larger. As of July 2022, the BTF ETF holds treasury bills, Bitcoin futures, and other assets under management.
3. Grayscale Bitcoin Trust (GBTC)
The Grayscale Bitcoin Trust (GBTC) is not yet an ETF, but Grayscale has shared its intention to convert this fund into a cryptocurrency ETF. The GBTC offers investment firms and banks crypto market exposure through over-the-counter trading shares backed by physical cryptocurrency. As of July 2022, the GBTC’s assets total approximately $20 million.
4. Global X Blockchain & Bitcoin Strategy ETF (BITS)
The Global X Blockchain & Bitcoin Strategy ETF (BITS) launched in November 2021 and offers investors the opportunity to invest in not only Bitcoin futures but also equity securities of companies involved in cryptocurrency through mining, digital transactions, and blockchain software and applications. The fund invests 80% or more of its $8 million net assets in blockchain businesses on long-term futures contracts for Bitcoin.
5. Amplify Transformational Data Sharing ETF (BLOK)
The Amplify Transformational Data Sharing ETF (BLOK) sits among the most significant funds centered around cryptocurrency-related technologies. Rather than tracking indexes or holding physical cryptocurrency, the BLOK ETF has holdings in blockchain companies dedicated to developing and using these technologies. This highly liquid fund has a net asset value of more than $580 million as of July 2022.
Why Invest in Crypto ETFs?
If you’ve never invested in cryptocurrency or have not had luck with it in the past, you may wonder, “Why should I invest in a crypto ETF? What makes this option better than directly purchasing cryptocurrency?” Let’s answer those questions by exploring the main benefits of investing in a crypto ETF.
Many investors and traders don’t have the time to track the unpredictable prices of digital tokens or the money to pay all ownership costs, digital wallet fees, and other expenses. If you want exposure to crypto while avoiding the hassle of physically owning digital tokens, you can buy shares of a crypto ETF. By becoming a shareholder, you can own crypto indirectly and enjoy returns and portfolio diversification without the added costs and stress of physical ownership.
Eases the Crypto Learning Curve
Many investors avoid cryptocurrency because crypto’s technology-driven jargon and functionality prove hard to grasp. Words like “blockchain” don’t mean anything to investors unfamiliar with how the technology works, and many people don’t want to invest in something they don’t understand.
Crypto ETFs ease the steep learning curve by allowing investors a passive avenue to familiarize themselves with crypto. Once they become shareholders, crypto ETF investors can choose to learn more about digital currency or simply let the fund manager handle the details.
While direct cryptocurrency investments require constant tracking within the erratic crypto market, crypto ETF investors enjoy passive returns while fund managers take care of the investing minutiae. You can expand your portfolio with multiple companies at once and enjoy diversification with little effort by investing in a crypto ETF.
More Secure and Safer Investment
The security of this new asset class has come under frequent scrutiny since its adoption in the wake of repeated cyber-attacks. Cryptocurrency wallets present tempting targets for hackers, and many investors and traders wonder about the security of these digital investments. While direct cryptocurrency investors must pay for security tools to keep their assets safe, crypto ETF investors enjoy the built-in protection that the companies backing these funds provide.
In addition to being safer from cyber-attacks, ETFs offer more affordable crypto investment options with less financial risk. Many investors can afford to invest in a crypto ETF with limited capital, while cryptocurrencies may remain out of reach due to the high buy-in cost.
Cryptocurrencies lack regulation and centralization, making them ineligible for things like pension funds. On the other hand, crypto ETFs are regulated by the Financial Industry Regulatory Authority (FINRA) and the SEC. Because ETFs undergo regulation and SEC approval, they offer investors more tax-efficient options than one would have when directly purchasing and selling crypto.
What Are the Risks of Investing in Crypto ETFs?
Before investing in a crypto ETF, be sure to consider the following risks:
- The cryptocurrency market is volatile, with rapidly shifting prices and regulatory conditions.
- Crypto ETFs often include yearly management fees and applicable brokerage fees.
- These funds often lack the diversification necessary to reduce market risk.
- International taxes apply to foreign crypto ETF units.
- Unlike cryptocurrencies, investors cannot trade crypto ETFs outside of market hours.
Consider your options carefully, and speak with a financial professional before investing in these digital assets. The expense ratio of purchasing shares in a crypto IRA can vary greatly.
How Else Can You Invest in Cryptocurrency For The Long-Term?
If you’re looking for other ways to invest in cryptocurrencies as a long-term investment, consider the following:
- Invest in a publicly held company with crypto holdings.
- Invest in cryptocurrency contracts for difference (CFDs).
- If you have the expertise, trade cryptocurrency futures contracts.
- Invest in a cryptocurrency IRA.
Talk to your financial advisor to learn more about investing in crypto ETFs, or let My Digital Money help you start your crypto investment journey. We’ll provide the tools you need to succeed in the cryptocurrency investment market.
Manage Your Crypto IRA and Trading From One Account
If you want to give cryptocurrency a try or create a crypto IRA, let My Digital Money help. We are a leading software platform for creating crypto IRAs and participating in crypto trading. We aim to provide investors with easy and safe methods for buying and selling cryptocurrency.
When you get started with My Digital Money, you’ll learn all about trading crypto before you ever risk a penny. We offer play money accounts that allow users to experiment and learn the ins and outs of the actual market before making trades with their funds.
If you trade cryptocurrency through My Digital Money, you can take advantage of fantastic features with no monthly fees, including our stop-loss order feature. You can buy or sell a specific cryptocurrency once it raises or drops to a predetermined price through automated orders. This feature helps our account holders limit their losses and maximize their returns.
Contact us to learn more about crypto ETFs and our crypto investment services. We would be happy to answer any questions you may have about cryptocurrencies and investments. Get in touch with us today by using our online contact form or calling 833-636-2008.