Cryptocurrency ETFs have been gaining traction as a sought-after investment vehicle. We offer you the most astute analysis of these funds and what they mean for your investment portfolio.
What Is a Cryptocurrency ETF?
First, it is crucial to understand what we mean by a Cryptocurrency, “What is an ETF crypto”?
An ETF crypto stands for Exchange-Traded Fund, where the underlying assets are various or sometimes singular cryptocurrencies.
An ETF is a security that tracks an index, a commodity, a bond, or a basket of assets. Click here to learn about Financial Indices.
In this context, a Cryptocurrency ETF tracks the performance of one or several digital currencies, a crypto index ETF or cryptocoin ETF.
ETFs are very similar to mutual funds, but there are differences that you can read about here.
Mutual funds are similar to ETFs, but they employ a fund manager who actively manages the fund, whereas an ETF is a passive investment, which is based on a computer-generated market capitalisation strategy.
When reading our blogs, you will always read a common theme about Active management vs Passive and which is the best, most effective or offers the cheapest expense ratio.
Why Invest in Cryptocurrency ETFs?
Investing in Crypto Exchange Traded Funds is an intelligent way to participate in the crypto market without the hassle of managing and storing individual coins.
It offers broad asset allocation, which creates portfolio diversification, ease of trading, and a safer way to invest in volatile markets.
Types of Cryptocurrency ETFs
There are various kinds of Cryptocurrency ETFs that you can invest in:
1. Bitcoin ETF: Bitcoin ETFs primarily focus on the most popular cryptocurrency, Bitcoin. We recommend this for investors looking to capitalise on the movements in the Bitcoin market.
2. Ethereum ETF: Similar to Bitcoin ETFs, Ethereum ETFs focus on Ethereum. We suggest considering Ethereum ETFs to exploit Ethereum’s smart contract functionality.
3. Index ETF: These ETFs track a crypto index. We recommend this for investors seeking exposure to the broader cryptocurrency market.
4. Altocoin ETF: This ETF encompasses all cryptocurrencies except Bitcoin.
5. Blockchain ETF: Blockchain is the IT infrastructure that manages the cryptocurrency world.
Actively Managed ETFs
For those who seek active management of their investments, actively managed ETFs are a good choice.
These ETFs are managed by experts who make investment decisions on your behalf.
If you are seeking active management, then a cryptocurrency mutual fund may also be a good option for you.
How to Invest in a Crypto ETF
Most pensions, savings plans, SIP Investment (Systematic Investment Plan) and regular investment plans will give you a broad range of access to ETF, Index and mutual funds. Crypto ETFs have only just started to appear on these platforms. You can read more about them here.
It’s important to check the historical performance of Crypto ETFs and their expense performance through a calculator. Hire a professional, someone who is an expert financial advisor on index funds.
Trading through a Lump Sum investment is easy as investment platforms or portfolio bonds are set up to facilitate ETF and Mutual Fund Investments. You can read about Lump Sum investing here. This is by far your best option.
If you are an expat, you can invest offshore and benefit from how tax-efficient crypto ETFs are.
Advantages of Investing in Cryptocurrency ETFs
Here is an outline of the key benefits of investing in Cryptocurrency ETFs:
Diversification is critical in managing investment risks. Cryptocurrency ETFs enable you to invest in a collection of coins rather than putting all your eggs in one basket.
Cryptocurrency ETFs are traded on stock exchanges, just like regular stocks. We appreciate that this ensures higher liquidity compared to direct cryptocurrency investments.
3. Lower Risks
When investing in a Cryptocurrency ETF, you’re not directly owning the cryptocurrency. This protects you from the risks associated with owning cryptocurrencies, such as hacking.
4. Professional Management
We value expert opinion. With actively managed ETFs, professionals make investment decisions, which can be particularly beneficial in the unpredictable crypto market.
The Crypto marketplace is the fastest evolving market in the world. What may be true when we wrote this, could be wrong by tomorrow.
I cannot stress strongly enough how incredibly complicated and risky the Crypto environment is.
There are also many people in this space with such little knowledge who will try and push advice upon you.
I strongly urge anyone reading this article to contact us for our advice or to take cautious steps if you choose to go alone.
Things to Consider Before Investing
We urge you to consider the following before investing in Cryptocurrency ETFs:
1. Market Volatility
The cryptocurrency market is highly volatile. We recommend that when allocating a portion of your investment towards Cryptocurrency ETFs.
2. Regulatory Changes
The cryptocurrency market is still very young, and regulatory changes can impact your investment.
We advise staying abreast of any changes that might affect the market.
At the point of writing this article, Cryptocurrencies were not regulated, and there was no formal plan in place to regulate them.
Crypto operates in the decentralised Finance world, which is different from Fiat currencies. It is known as a digital asset, although it can come in physical form.
3. Expense Ratios
Cryptocurrency ETFs can have higher expense ratios compared to traditional ETFs. We recommend evaluating the expense ratios, as fees can erode your returns.
The Best Cryptocurrency ETFs in the Market
While we don’t publicly endorse any particular cryptocurrency investment, some of the top-performing Cryptocurrency ETFs in the market are Bitwise 10 Crypto Index Fund, Grayscale Bitcoin Trust, and Purpose Bitcoin ETF.
We advise analysing the performance, management, and expense ratios of these ETFs before making an investment decision.
We conclude that Cryptocurrency ETFs are an excellent investment vehicle for investors looking for exposure to the crypto market without directly owning the currencies. However, due caution and diligence are vital before making any investment decisions.
If you are new to this space, we strongly suggest you speak to a professional.