An alternative way to go crypto.
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Bitcoin exchange-traded funds (ETFs) set the crypto markets buzzing in early 2024, when the first batch of spot price ETFs received approval from U.S. regulators. In July 2024, Ethereum spot price ETFs were approved.
The approval of spot price ETFs kicked off a crypto bull run—which may thrill you as an investor. Buying shares in a crypto ETF might feel safer and more convenient than buying digital tokens directly, but any type of exposure to this volatile asset class is risky. Before making any investment decision about crypto ETFs—or any investment vehicle, for that matter—make sure you know what you’re getting into.
Key Points
- Cryptocurrency ETFs track crypto spot prices or futures contracts.
- Eleven new Bitcoin ETFs began trading in January 2024, and Ethereum spot ETFs joined them in July of that year.
- Cryptocurrencies have historically been volatile; investing in any type of crypto fund adds portfolio risk.
What is a cryptocurrency ETF?
A crypto exchange-traded fund is a type of investment fund that tracks the spot market price (i.e., the price you see and can trade on a crypto platform) or futures contract price of one or more cryptocurrencies. Crypto ETFs stand out because they’re traded on traditional stock exchanges, enabling investors to gain cryptocurrency exposure without directly owning any digital assets.
A crypto spot price ETF directly owns a cryptocurrency, such as Bitcoin or Ethereum, and sells shares in the ETF to investors. Each share represents a portion of the ETF’s crypto holdings.
Cryptocurrency ETFs that hold positions in futures contracts track the prices of those crypto futures contracts rather than the price of any cryptocurrency directly. Typically, futures contract ETFs are technically exchange-traded notes (ETNs) that provide only indirect, derivative exposure to digital assets.
Crypto ETFs may focus only on Bitcoin, only on Ethereum, or a mix of both.
- Bitcoin ETFs. Spot price Bitcoin ETFs grabbed the headlines in early 2024, but you can invest in Bitcoin ETFs that track futures contracts, too. Both types of Bitcoin ETFs already trade on major stock exchanges.
- Ethereum ETFs. Ethereum-based futures contract ETFs had been available for several years before the U.S. Securities and Exchange Commission (SEC) issued final regulatory approval for spot price Ethereum ETFs in July 2024.
- Mixed cryptocurrency ETFs. Some crypto ETFs provide exposure to a mix of Bitcoin and Ethereum, but these ETFs typically positions only in futures contracts.
Crypto ETFs aren’t new
Cryptocurrency ETFs have been available to investors since October 2021. The first Bitcoin ETF, focused on futures contracts, was the ProShares Bitcoin Strategy ETF (BITO).
Crypto ETF list
There are plenty of choices for investors with an appetite for crypto ETFs. With the SEC’s approval, 11 new spot price Bitcoin ETFs entered the market in January 2024. Nine of them trade on the New York Stock Exchange:
- ARK 21Shares Bitcoin ETF (ARKB)
- Bitwise Bitcoin ETF (BITB)
- Franklin Bitcoin ETF (EZBC)
- Fidelity Wise Origin Bitcoin Fund (FBTC)
- Grayscale Bitcoin Trust (GBTC)
- Hashdex Bitcoin ETF (DEFI)
- Invesco Galaxy Bitcoin ETF (BTCO)
- VanEck Bitcoin Trust (HODL)
- WisdomTree Bitcoin Fund (BTCW)
The remaining two—BlackRock’s iShares Bitcoin Trust (IBIT) and the Valkyrie Bitcoin Fund (BRRR)—trade on the Nasdaq.
In July 2024, the SEC approved eight Ethereum spot ETFs:
- 21Shares Core Ethereum ETF (CETH)
- Bitwise Ethereum ETF (ETHW)
- Fidelity Ethereum Fund (FETH)
- Franklin Ethereum Trust (EZET)
- Grayscale Ethereum Mini Trust (ETH)
- Invesco Galaxy Ethereum ETF (QETH)
- iShares Ethereum Trust (ETHA)
- VanEck Ethereum Trust (ETHV)
Would you rather add portfolio exposure to crypto futures contracts? Then your choices include:
- ProShares Bitcoin Strategy ETF (BITO)
- VanEck Bitcoin Strategy ETF (XBTF)
- VanEck Ethereum Strategy ETF (EFUT)
- ProShares Ether Strategy ETF (EETH)
- Valkyrie Bitcoin and Ether Strategy ETF (BTF)
Many of the same ETF sponsors are seeking SEC approval for a spot price Ethereum ETF. BlackRock, Fidelity, ARK Invest, Grayscale, VanEck, Franklin Templeton, Invesco Galaxy, and Bitwise are all awaiting final regulatory approval for their spot price offerings.
Before making any portfolio decisions, you’ll want to understand both the benefits and risks of buying shares in a crypto ETF.
The benefits of investing in a crypto ETF
- Accessibility. Crypto ETFs are traded on traditional stock exchanges, making it straightforward for investors to buy shares without the need for a crypto wallet or an account on a crypto exchange. Brokerage accounts provide easy access to crypto ETFs.
- Liquidity. The accessibility of crypto ETFs supports their liquidity. The ease of buying and selling shares in a crypto ETF may exceed the ease of trading the underlying digital asset.
- Professional management. Exchange-traded funds—even “passive” ones—are managed and/or closely supervised by investing professionals.
- Investor protections. ETFs are regulated financial products that afford specific protections to investors. For example, ETF managers are required to regularly disclose exchange-traded funds’ holdings.
- Portfolio diversification. Obsessed with diversifying your portfolio? Adding one or more crypto ETFs may substantially vary your holdings.
- Growth potential. The digital assets sector is rapidly expanding. Investing in a cryptocurrency ETF can be a way to capture value from the cryptocurrency market as the industry matures.
The risks of investing in a crypto ETF
- Lack of fundamental value. Cryptocurrencies, unlike stocks, don’t represent ownership in a tangible asset or company. The lack of fundamental value makes any type of exposure to digital assets risky.
- Price volatility. The price performances of cryptocurrencies are typically volatile. The speculative nature of crypto investing impacts the prices of both digital assets and their associated ETFs.
- Limited fund histories. Spot price crypto ETFs are a new financial product with not much performance history. Investors wishing to choose the “right” crypto ETF have limited data to guide their purchase decisions.
- Potential for tracking errors. A spot price crypto ETF may not perfectly track the price of the underlying cryptocurrency. Volatile market conditions and faulty management strategies can cause significant tracking errors.
- High expense ratios. Almost all exchange-traded funds have expense ratios—management fees—to compensate the fund manager. Some crypto ETFs may charge higher management fees than other ETFs.
- Regulatory uncertainty. The regulatory environment for cryptocurrencies is uncertain and rapidly evolving. Significant regulatory changes may negatively impact your crypto ETF holdings.
- Potential for large losses. The highly risky nature of cryptocurrencies creates the potential for large portfolio losses. Owning only crypto ETFs, rather than the digital assets directly, does not mitigate this risk.
The bottom line
The launch of spot price cryptocurrency ETFs is a major milestone for this growing asset class. Greater inflows from institutions and enhanced regulatory clarity both have the potential to increase liquidity in the crypto markets.
All of that’s exciting—and may whet your appetite for shares in a crypto ETF. Just make sure to do your own research and carefully consider the risks before investing any of your hard-earned cash.
