Crypto ETFs promise no wallets, keys, or ownership hassles — just simplified investing. But are they right for you?
4 min read
The market for crypto assets and the purchase of crypto assets constitute a high risk. Crypto assets are subject to high fluctuations in value, and there is no real underlying asset. Declines in value or a rapid, complete loss of the money spent are possible at any time. Past performance is not a reliable indicator of future performance. The values depicted above are fictional and for illustrative purposes only. The statements and illustrations do not constitute investment advice.Cryptocurrency exchange-traded funds (ETFs) have taken the investment world by storm, promising a simpler way to dabble in digital assets. But they didn’t just appear overnight. Their journey from rejection to mainstream acceptance is a story of persistence, innovation, and regulatory evolution. Now, it’s attracting those eager to invest in crypto without the complexities of direct ownership.
Europe’s head start in the crypto ETF race
While the U.S. tiptoed around crypto ETFs for years, Europe and Canada were more accommodating. In 2015, Sweden made history by launching the first crypto-linked exchange-traded product (ETP), setting the stage for Europe to become a hub for regulated digital asset investments. Countries like Switzerland and Germany quickly followed, offering a variety of Bitcoin, Ethereum, and diversified crypto products on exchanges like SIX and Deutsche Börse.By the early 2020s, European investors were already enjoying direct access to crypto through exchange-traded products. Meanwhile, in the U.S. between 2018 and 2023, the SEC turned away more than 20 such proposals, citing concerns over market manipulation and investor protection. A breakthrough came in October 2021, when the SEC approved Bitcoin futures ETFs. Fast forward to January 2024, and the SEC green-lit 11 spot Bitcoin ETFs. On their first trading day, these funds raked in $4.5 billion in volume and institutional investors flocked in, with major players like JPMorgan and UBS adding Bitcoin ETFs to their portfolios.
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Crypto ETFs offer exposure to digital currencies without the complexities of crypto ownership. For example, a Bitcoin ETF lets you track Bitcoin’s price movements without owning a single satoshi. Whether it’s a single asset like Ethereum or a whole basket of crypto goodies, these ETFs make it simple for investors to get a slice of the action while staying in the familiar playground of traditional stock markets.
Spot and futures ETFs
While some ETFs hold cryptocurrencies directly (spot ETFs), others track futures contracts (futures ETFs). When you buy a share in a spot ETF, the fund buys and holds the actual cryptocurrency for you. Your investment rises and falls with the asset’s price — but you save the hassle of managing wallets or keys. In contrast, futures ETFs don’t hold cryptocurrencies directly. Instead, they use contracts that bet on future price movements. For example, a Bitcoin futures ETF buys and sells futures contracts, tracking Bitcoin’s performance indirectly.But futures ETFs can also get creative. Take inverse ETFs, for example. These funds are designed to profit when Bitcoin prices drop. For example, if Bitcoin’s price falls by 1%, an inverse Bitcoin ETF aims to increase by 1%. For investors who love a bit of contrarian action, they’re the ultimate "short the market" play. And it’s not just Bitcoin. Futures ETFs are also available for Ethereum and even combinations of the two.
Skipping the keys and fees
For anyone curious about crypto but hesitant to tackle its complexities, crypto ETFs promise to be a good gateway. They let you potentially benefit from cryptocurrency price movements without the headache of owning the assets outright, just a straightforward purchase through your brokerage account. Crypto ETFs also eliminate the need for specialized knowledge about blockchain networks or wallets.Plus, the crypto world is full of cautionary tales about people losing access to their private wallet keys, and with them, millions in digital assets. With an ETF, that’s not your problem. Your shares are stored in your brokerage account like any other stock or ETF. Directly owning crypto can also get expensive. Secure wallets often charge annual fees, and transactions come with network fees. ETFs bundle all these costs into a single expense ratio, making budgeting simpler and more predictable.
The downsides of choosing crypto ETFs
All that said, convenience comes at a cost. Crypto ETFs often have higher expense ratios than traditional ETFs, particularly if they’re actively managed. Additionally, while ETFs are regulated, the crypto markets they invest in often aren’t. This lack of oversight can lead to issues like price manipulation or fraudulent activity — risks that traditional markets don’t typically face.When you invest in a crypto ETF, you’re buying shares in the fund, not the cryptocurrency itself. That means you miss out on some of the perks that make crypto unique, like decentralization, anonymity, and the ability to use your assets directly. Plus, not all crypto ETFs directly track the price of their underlying assets. Futures-based ETFs, for example, rely on contracts that expire and need to be rolled over. This can create discrepancies between the ETF’s performance and the actual price of the cryptocurrency.
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An emerging field that lets participants make financial transactions directly with others–and it’s quickly gaining in popularity as an alternative to traditional financial services.
Even if you’re familiar with Bitcoin, you might not know the difference between private and public keys. Discover everything you need to know to get started.
An emerging field that lets participants make financial transactions directly with others–and it’s quickly gaining in popularity as an alternative to traditional financial services.
Even if you’re familiar with Bitcoin, you might not know the difference between private and public keys. Discover everything you need to know to get started.
