What Are Crypto Exchange-Traded Funds (ETFs)
Crypto ETFs are a type of investment that tracks the value of a collection of crypto assets. It is an asset class like mutual funds and can include companies that derive their revenue from blockchain-based operations. This can crypto exchanges, companies that build crypto mining chips, and even crypto hardware integration companies.
ETFs are an easy way to invest in crypto. The funds are traded on stock exchanges, hence, investors do not deal with gas fees of crypto exchanges or the risk of losing private keys. The brokerage firm which lists the ETF buys the crypto asset and bears the cost of storing It while the investor buys shares that represent their right to the ETF. They profit from the volatility of the assets without owning them directly.
Types of Crypto ETFs
1). ProShare Bitcoin ETF
ProShare Bitcoin Futures ETF (traded as BITO on stock exchanges) tracks the price of Bitcoin futures contracts and not its current market price. It is actively managed by the ProShare team who decides the fund’s diversification. BITO mainly contains Bitcoin futures contracts and a small portion of other asset classes like bonds.
BLOK is a crypto ETF that tracks the performance of companies that interact with blockchain technology. It is an actively managed ETF with 80% of its assets dedicated to blockchain-related companies and crypto exchanges like MicroStrategy and Coinbase. BLOK funds also comprise companies that partner with blockchain-based companies.
3). Valkyrie Bitcoin ETF
Valkyrie Bitcoin ETF (present as BTF on stock exchanges) is an actively managed ETF that invests majority of its funds in several Bitcoin futures contracts such that the total value of the Bitcoin underlying the futures contracts makes up 100% of its net portfolio.
4). Valkyrie Bitcoin Miners ETF
Valkyrie Bitcoin Miners ETF (traded as WGMI on the stock exchanges) is an actively managed ETF that invests 80% of its funds in companies that make at least 50% of their profit from bitcoin mining operations. WGMI funds also include firms that provide hardware or software services to companies that engage in bitcoin mining.
How To Invest in Crypto ETFs
1). Open a brokerage account
The first thing to do when looking to invest in crypto ETFs is to open a brokerage account. Most brokerage firms allow you to choose between opening a cash or margin account. A cash account lets you invest in ETFs directly with your money while a margin account allows you to borrow from the broker and pay back with interest.
2). Search for the ETF you want to invest in with its ticker symbol
After opening your account, search for the crypto ETF you want to invest in using its ticker symbol. The ETF you choose should depend on your risk appetite.
ETFs that track futures contracts are more volatile than those which provide equity for companies that provide blockchain services. Also, a crypto ETF with a wide range of asset classes can help you build a diversified portfolio that provides you with a hedge during extreme crypto volatility.