Crypto ETFs are a way to get exposure to cryptocurrencies conveniently and straightforwardly, without purchasing crypto wallets, just like investing in a regular exchange-traded fund. Some of the best and approved crypto ETFs are ProShares Bitcoin Strategy ETF, Bitwise Crypto Industry Innovators ETF, Amplify Transformational Data Sharing ETF, Valkyrie Balance Sheet Opportunities ETF, and VanEck Digital Transformation ETF.
While decentralized, the blockchain industry keeps coming up with more conventional investing methods. The primary goal is to get crypto closer to the people who are not as tech-savvy or like a more conservative way of investing.
ETFs were introduced over 30 years ago in 1990 in Canada as a way for industrial investors to get exposure to a diversified index fund.
Soon independent investors could use the ETFs and get broad diversification, unlike with regular stock.
What made ETFs famous is the easy process of buying and selling. Unlike mutual funds, they’re low cost and often don’t require a set minimum investment. ETFs are a favorite among the crowd due to their good tax efficiency.
So how can you get exposure to diversified index funds focusing on cryptocurrency? We have some good suggestions below, even for newbies to crypto.
What is an ETF?
An exchange-traded fund is a sum of diverse stocks, bonds, commodities, or currencies following a specific index.
The S&P 500, for example, has many ETFs (like the SPY) that provides investors with exposure to stocks from the 500 largest companies like Apple, Microsoft, Amazon, Tesla, NVIDIA, and more.
An ETF often focuses on one index, industry, sector, or commodity.
Investors can purchase and sell ETFs on a stock exchange like a regular stock while getting exposure to multiple stocks in one.
ETFs vs. mutual funds
ETFs are often confused with mutual funds.
Although ETFs are more liquid than mutual funds, they’re usually passively managed and traded on a stock exchange which means you get a variable price throughout the day.
Mutual funds are bought with an order where all investors buying on the same day get the same price.
There is a fixed minimum amount when buying mutual funds, so you can purchase the funds in fractional shares. ETFs are traded like a stock, so there is no minimum amount; you can buy just one share of an ETF.
And finally, one of the most important points for investors is the fees and tax efficiency. You can buy mutual funds without trading commission, but the selling will trigger capital gain taxes, sometimes, even if you’ve suffered a loss on the entire investment.
ETFs come with implicit and explicit costs
- The explicit costs are the trading commission and the operating expense ratio.
- The implicit costs come from trading an ETF in the market at a price different from the value of the ETF’s underlying holding.
Why you need to invest in a crypto ETF
If you were looking for a way to invest in crypto but don’t want to own or trade your own Bitcoin, Ethereum, or other currency, then the crypto ETFs are what you need.
A crypto ETF follows the value changes of one or more cryptocurrencies. Just like a regular ETF, it is traded like a regular share on a stock exchange.
Investors in crypto ETFs get indirect exposure to the volatility of the cryptocurrency.
Companies that stand behind crypto ETFs must bear custody of the cryptocurrency whether it is one or several currencies.
All crypto ETFs must receive a green light from the SEC before trading on the US market or the respective market if they’re trading in another country.
The US Security and Exchange Commission (SEC) is responsible for regulating ETFs.
In 2019 SEC introduced new rules to modernize ETF regulations, making it easier for ETFs to introduce exemptions without waiting for lengthy and costly approvals.
The changes resulted in a record-breaking year – in 2021, the amount of money that flowed into US-listed ETF was $910 billion. For comparison, in 2020, the final result was $507 billion.
Why are investors spending so much money on ETFs? Here are some of the benefits:
- Small upfront cost, you can invest as little as $50;
- Low fees and wide availability on most online brokerages as ETFs are intended for the mass market;
- 24- hour trading, you can sell or buy ETFs any time of the day, just like cryptocurrencies;
- Passive investing, you can gain revenue without spending time constantly trading cryptocurrency.
My top 5 crypto ETF picks
1. ProShares Bitcoin Strategy ETF
The ProShares Bitcoin Strategy ETF or BITO is the first only Bitcoin ETF allowed to trade on a major US stock exchange.
It got approved in October of 2021, and provides investors with exposure to bitcoin volatility in a more conservative way.
According to Nasdaq, BITO has $552 million in assets under management, an average daily trading volume between $7 and $8 million, and an expense ratio of 0.95%.
How does BITO ETF operate?
Instead of buying Bitcoins to provide the investors with exposure, this ETF owns different Bitcoin futures contracts.
2. Bitwise Crypto Industry Innovators ETF
Bitwise Crypto Industry Innovators ETF, or BITQ, doesn’t own bitcoins but invests in companies that gain most of their revenue, 75% or more, from crypto business activities.
The list of companies includes MicroStrategy, Coinbase Global Inc, and Galaxy Digital Holdings Ltd.
The expense ratio of KITQ is 0.85%, and they have $66 million in assets under management.
3. Amplify Transformational Data Sharing ETF
Amplify Transformational Data Sharing ETF, or BLOK is the pioneer in crypto ETFs.
It started in 2018 by investing in companies developing new coins or using blockchain technology.
Some of the companies on their list are CME Group Inc, GMO Internet Inc, and International Business Machines Corporation.
BLOK’s expense ratio is 0.71%, with $659 million in assets under management.
4. Valkyrie Balance Sheet Opportunities ETF
Valkyrie Balance Sheet Opportunities ETF or VBB doesn’t invest in crypto coins but in companies who get their revenue from bitcoin transactions or hold crypto coins in their balance sheets.
Around 30% of the investments of VBB are made out of Tesla, Microstrategy Inc, and Block Inc shares.
Valkyrie Balance Sheet Opportunities ETF has $650.5 million in assets under management.
5. VanEck Digital Transformation ETF
VanEck Digital Transformation ETF (DAPP) was launched in the spring of 2021 and holds stocks in companies that own cryptocurrency or use blockchain technology.
Coinbase, Block Inc, and Silvergate Capital Corp are their top three holdings.
Overall, VanEck Digital Transformation ETF has the lowest expense ratio at 0.50%, with $34 million in assets under management.
What’s unique to VanEck Digital Transformation ETF is that they give investors exposure to international stock along with crypto.
They hold 25 stocks, of which over 50% are in US-based companies.
How to invest in crypto ETFs
The first step toward investing in crypto ETFs is opening a brokerage account.
Since crypto ETFs are traded like a regular stock, you need to open an account with one of the many brokers like TD Ameritrade, Webull, Robinhood, Fidelity, or Charles Schwab.
After opening an account, you need to define how much you’re willing to invest; remember, ETFs don’t have a minimum set deposit.
The following step is to send an order; since ETFs are traded like a stock, you can get a response relatively quickly.
If you plan on investing in crypto ETFs regularly, you can also set up an automated investing plan.
Does Vanguard have crypto ETF?
While you can’t buy any cryptocurrencies via Vanguard, you can still get exposure to the volatility of crypto. Vanguard offers its clients access to crypto ETFs that cover companies that make most of their income from blockchain technologies and cryptocurrency.
As a Vanguard client, you can invest in Grayscale Bitcoin Trust (GBTC) and Bitwise 10 Crypto Index Fund (BITW), for example.
Should you buy crypto ETF?
If you want exposure to the crypto world but don’t want the whole procedure that involves research, purchase of wallets, and trading, crypto ETFs are a good option.
They can expose you as an investor to companies that mine cryptocurrency or those that profit from trading cryptocurrency, like Coinbase, for example.
Is there a Coinbase ETF?
There’s no Coinbase ETF, but there are some ETFs that own stock in Coinbase, like Bitwise Crypto Industry Innovators ETF and VanEck Digital Transformation ETF.
This is a way to get exposure to the Coinbase profits and volatility.
Crypto is not everyone’s cup of tea, some prefer the traditional way of investing, and we can see why. All types of cryptocurrencies are significantly more volatile than stocks and speculative.
But blockchain technology sneaks into all pores of the financial markets, so it made its way into the exchange-traded funds.
It’s a good idea if you want to get some exposure to the hottest investment of the century without having to open a wallet or scroll through the hundreds of crypto coins.
Have you ever looked at crypto ETFs? What’s your stance on them?