Crypto ETFs

Cryptocurrency exchange traded funds (ETFs) are a type of investment fund that tracks the performance of one or a basket of cryptocurrencies. Similar to traditional ETFs, a crypto ETF is traded on exchanges and offers a convenient way to get exposure to the crypto market without holding cryptocurrencies directly.

Differences Between Stock ETFs and Crypto ETFs

Both traditional stock ETFs and crypto ETFs are designed to track the performance of an underlying asset. In the case of stock ETFs, they track the price movements of a basket of company shares, while crypto ETFs track the performance of various cryptocurrencies. 

Both ETFs are traded on stock exchanges, offering investors a more convenient way to gain exposure to the underlying assets without holding the assets directly.

Despite these similarities, there are some differences between the two. The underlying assets for crypto ETFs are digital currencies, which can be more volatile and complex than traditional stocks. This leads to unique risk factors. Additionally, the regulatory landscape for crypto ETFs is less established. Regulators in many countries are still working toward drafting rules for this emerging new asset class. 

Moreover, settlement and custody for digital assets have unique technical requirements compared to traditional stocks. Crypto ETF operators need secure storage solutions like cold storage to protect against potential cyberattacks.

Differences Between Physically-Backed Crypto ETFs and Synthetic Crypto ETFs 

There are two primary types of cryptocurrency ETFs.

The first type are physically-backed cryptocurrency ETFs, also known as spot ETFs. An investment firm that manages the ETF purchases and holds the cryptocurrencies themselves. When investors buy shares in these ETFs, they indirectly own the underlying cryptocurrencies, gaining exposure without the need to buy and manage individual coins. 

The first spot Bitcoin ETF was listed on August 15, 2023 in Europe, and numerous other spot Bitcoin ETFs are pending approval elsewhere.

Physically-backed crypto ETFs come with several pros and cons: