All You Need To Know About Crypto ETFs

An exchange-traded fund is an investment fund that tracks the performance of an index. An ETF invests in a cluster of stocks, bonds or other types of assets. Similar to ETFs of traditional markets, crypto investors can also invest in cryptocurrency ETFs. 

Here’s more about crypto ETFs.

What Are Crypto ETF?

A crypto ETF (exchange-traded fund) is a pooled investment that tracks the price of one cryptocurrency or a combination of different crypto tokens. 

Based on the sales or purchases, the share price of a crypto ETF will fluctuate daily. They can be traded daily, just like other common stocks. ProShares Bitcoin Strategy ETF, launched in October 2021, is the first crypto ETF. 

Types Of Crypto ETF

Here are the two types of crypto ETFs:

1. Cryptocurrencies can back crypto ETFs. The firms that offer such ETFs buy cryptocurrencies, while the ownership of the crypto coins will be represented as shares. If you purchase a share of an ETF, you indirectly own a crypto asset. This way, you get good exposure to cryptocurrencies without bearing the hassles, risks and expenses of owning them. 
2. Another type of Crypto ETF tracks cryptocurrency exchange-traded products (ETPs) and futures contracts. 

The share prices of crypto ETFs are not the prices of the cryptocurrencies they track. They mimic the price movements of the coins they follow. Thus, the share price for a specific crypto ETF rises with an increase in its futures contract prices. The price decrease also occurs in the same way. One major risk of these ETFs is that their operations may sometimes be transparent. 

Advantages Of Crypto ETF

Crypto ETFs have the following advantages. They are:

1. Cost-effectiveness

When you buy a crypto ETF, you get the asset at a fraction of the cost of the actual crypto token. Take the example of Bitcoin. Its value has skyrocketed to a whole new level. For early investors, it may not be feasible to purchase crypto directly. Buying a crypto ETF is a good choice in this case. 

2. Security

A big factor in owning cryptocurrencies is that you have to store them securely. However, despite all measures, there are numerous instances where cryptocurrencies got hacked and stolen. In the case of crypto ETFs, you do not have to have to worry about the security of your shares. The responsibility for their safeguarding is that of the company that provides it. 

3. Hassle-free

Owning cryptocurrency has a huge list of additional expenses. There are custody charges and crypto wallet annual charges. For crypto ETFs, all these hassles are dealt with by the providing company. 

In other words, you do not have to get involved in the nitty-gritty of cryptocurrency trading. 

Top 5 Crypto ETF

If you want to invest in crypto ETFs, you can consider the following options:

1. Amplify Transformational Data Sharing ETF

When it comes to crypto and digital assets, this ETF is one of the largest to follow. With an annual expense ratio of 0.71%, this company is one of the best choices you can make while starting. This ETF contains 47 company stocks. Its top holders are Coinbase Global and Nvidia.   

2. Siren Nasdaq NexGen Economy ETF

This crypto ETF aims to encompass companies that deal with general technology and might be interested in crypto or blockchain technology. It has 64 stock options and an expense ratio of 0.68%. Its top holder is IBM. 

3. Bitwise 10 Crypto Index Fund

This unique ETF invests in the top 10 cryptocurrencies based on their current market cap. Depending on crypto prices, the company rebalances this list every month. Bitcoin (61%) and Ethereum (29%) occupy the lion’s share of this portfolio at the time of writing. The assets include famous cryptocurrencies like Cardano, Solana and Avalanche. One thing to keep in mind is that this ETF trades over the counter. It has an expense ratio of 2.5%. 

4. First Trust Indxx Innovative Transaction & Process ETF

First Trust is a large and well-established company that will give you 103 stock options. It has an annual expense ratio of 0.65%, making it one of the most cost-effective options in this segment. 

5. Bitwise Crypto Industry Innovators ETF

This ETF company is relatively new to the crypto market when writing. It has 30 stock options and focuses more on crypto pioneers and innovators. Its top holders include Coinbase, MicroStrategy, and Silvergate Capital. It has an annual expense ratio of 0.85%.  

These are some of the best options in this segment. However, you can always opt for an ETF of your choice. 

Before you jump in, please remember that ETF is a fairly new kid on the block. As they are related to cryptocurrencies, price volatility is something you can’t avoid. Always remember to invest in small amounts and aim for a long-term investment goal.