Cryptocurrency ETF, or Exchange Traded Fund, is a financial instrument that tracks the performance of a particular set of cryptocurrency assets. It is similar to a mutual fund, but instead of buying assets, you are buying a stake in a basket of cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin. With a Cryptocurrency ETF, you can invest in a variety of digital assets without going through the process of buying and trading them individually. Cryptocurrency ETFs are usually managed by a professional team of experts and are traded on the stock market. CryptoNewsHerald is a platform designed to provide information and tools to help users understand, use, and invest in cryptocurrency ETFs.
AdvancedTrading and investment
AdvancedTrading and investment
- A cryptocurrency ETF is an exchange-traded fund whose price is pegged to one or more digital assets. Crypto-ETFs make it easier for investors in the stock market, both institutional and retail, to access crypto-currency investments.
- The most promising exchange-traded fund is a bitcoin ETF that would be traded on the US market. So far, the regulator has not approved any application for the issuance of such an instrument.
- Now ETFs for bitcoin futures and shares of crypto companies are traded on exchanges.
What is an ETF?
An ETF stands for “exchange-traded fund” and is a fund whose shares are traded on an exchange. A fund is a legal organization that has an asset or a portfolio of assets on its balance sheet, formed according to certain criteria. It may include securities, valuable commodities, bonds, currencies, stock indices, and so on.
Each ETF share is backed by a certain percentage of the fund’s assets. Thus, the owner of the ETF invests in the fund’s portfolio, but does not directly own its assets.
Funds are created by specialized companies. They also manage them, for example, if necessary, rebalance their composition and keep records. The largest ETF operators in the world are BlackRock, Vanguard, State Street, Invesco, iShares and Charles Schwab.
How popular are ETFs?
Today, exchange-traded funds are one of the main instruments for investment. According to Informa Financial Intelligence, in November 2021, the total amount of funds in ETFs exceeded $10 trillion, although in 2018 this figure was $5 trillion.
For institutional investors, this is a suitable way to passively invest. Unlike active strategies, ETFs do not require their holders to hold and trade the assets themselves, have a simple legal structure, and show more stable results in the long term.
The ETF allows the retail investor to quickly and efficiently diversify their portfolio by having a large number of assets at the heart of the fund. Finally, exchange-traded fund operators charge their holders much lower management fees than investment funds.
Why do you need an ETF for cryptocurrency?
Not all large investors are ready to directly purchase digital assets due to an inferior legal framework and difficulties with their storage. In turn, ETFs would become a familiar and easy way to enter the cryptocurrency market.
An ETF is a familiar legal structure that operates within a traditional financial infrastructure. It is also a highly liquid instrument that can be placed on the largest stock exchanges in a short time, providing an opportunity to invest in cryptocurrency for both institutional and retail users. The exchange-traded fund operator is responsible for holding the underlying asset.
What crypto ETFs are already being traded?
Today, exchange-traded funds that are indirectly related to the blockchain industry are traded in different countries – for example, those whose price is pegged to a basket of shares of public crypto companies. But special attention is focused on ETFs based on the cryptocurrencies themselves: in this case, the fund operator acquires digital assets for it, therefore, it serves as a source of additional demand on the crypto market. The price of such instruments depends on the spot prices for crypto assets.
The main potential market for a spot crypto ETF is the United States. Since 2018, many companies have applied for SEC to register an exchange-traded fund. However, the regulator has not yet approved any such instrument.
The first spot bitcoin ETF in North America was launched in Canada in February 2021. It is called Purpose Bitcoin ETF and is traded on the Toronto Stock Exchange. The amount of funds in the fund exceeds $800 million.
In addition, ETFs that are indirectly related to the crypto market are traded in different countries.
Among the most famous is the Bitcoin Strategy ETF (BITO) from ProShares. At the end of 2021, it received SEC approval and was listed on the New York Stock Exchange. The underlying asset of BITO is bitcoin futures contracts that have been traded on the Chicago Mercantile Exchange since 2017. As of the end of May 2022, the volume of the fund is about $1 billion.
Similar exchange-traded funds, after being approved by the SEC at the end of 2021, were released by VanEck and Valkyrie Investments. In April 2022, the regulator allowed launch Teucrium bitcoin futures ETF.
Grayscale manages an ETF called Future of Finance (GFOF), which includes shares of public companies working in the field of blockchain and cryptocurrencies. In May 2022, it listed the GFOF analogue on European exchanges.
BlackRock has also launched an ETF based on companies in the crypto industry. Samsung Asset Management plans to launch a fund based on blockchain companies on the Hong Kong Stock Exchange.
In addition, there are exchange-traded funds based on altcoins. For example, in early 2022, an ETF was launched in Brazil, which is built on indices of DeFi tokens.
How to buy an ETF for cryptocurrency?
To buy exchange-traded funds, you need access to the trading floors of those countries in which crypto-ETFs are traded. To do this, you will most likely need a bank account and the services of a licensed broker. According to their status, ETFs correspond to ordinary shares, so a wide range of investors can buy them.
Another way is to use a trading platform that provides access to many markets, such as Interactive Brokers or Freedom Finance.
What are the prospects for ETFs for cryptocurrencies?
Experts expect the launch of spot crypto ETFs in the next 1-2 years. Now the SEC is considering several applications at once. For example, from the company Grayscale – they want to convert their bitcoin trust into an ETF. ARK and 21Shares also want to release their cryptocurrency exchange fund.
In March 2022, Charles Schwab, one of the largest US brokers, filed an application with the SEC to launch an ETF based on its own “cryptoeconomics index”. The underlying asset, as they say in the company, will be “companies that benefit from the mining or use of cryptocurrencies and other digital assets.”
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A Cryptocurrency ETF is an exchange-traded fund that invests in cryptocurrencies. These funds provide investors with a way to gain exposure to the digital asset class without having to buy any actual coins. They are an attractive option for those who are looking to diversify their portfolio, but may not have the time or resources to actively manage a cryptocurrency portfolio. Cryptocurrency ETFs have become increasingly popular since their debut in 2020, and this trend is likely to continue in the future.