Introduction
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 crypto currencies.
An ETF is essentially a security that tracks an index, a commodity, bonds, 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 important differences, you can read about here.
Mutual funds are similar to ETFs, but they employ a fund manager who actively manages, whereas an ETF is a passive investment, which is based on a computer-generated market capitalisation strategy.
When reading my blogs you will always read a common theme about Active vs Passive management, and which is the best, most effective or offers the cheapest expense ratio.
Why Invest in Cryptocurrency ETFs?
We think 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 specifically capitalize 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: Generally speaking this encompasses all crypto currencies except Bitcoin.
5. Blockchain ETF: Blockchain is the IT infrastructure that manages the cryptocurrency world. Here is a list of the best Blockchain ETFs in 2023, August, according to Forbes.
Actively Managed ETFs
For those who seek active management in their investments, actively managed ETFs are the perfect choice.
These ETFs are managed by experts who make investment decisions on your behalf.
If you are seeking active management then a 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 broad range access to ETF, Index & Mutual funds. Crypto ETFs have only just tsarted to appear on these platforms, you can read more about them here.
Its 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 very easy as investment platforms or portfolio bonds are set up specifically to facilitate ETF and Mutual Fund Investments. You can read about Lump Sum investing here. This is by far your best option.
If you invest offshore then you benefit from how Tax-Efficicient Crypto ETFs are.
Advantages of Investing in Cryptocurrency ETFs
Here we outline the key benefits of investing in Cryptocurrency ETFs:
1. Diversification
We believe 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.
2. Liquidity
Cryptocurrency ETFs are traded on stock exchanges, just like regular stocks. We appreciate the fact that this ensures higher liquidity compared to direct cryptocurrency investments.
3. Lower Risks
By investing in a Cryptocurrency ETF, you’re not directly owning the cryptocurrency. This protects you from some of the risks associated with owning cryptocurrencies, such as hacking.
4. Professional Management
We value expert opinion. With actively managed ETFs, you have professionals making investment decisions, which can be particularly beneficial in the unpredictable crypto market.
The Crypto marketplace is possibly the fastest evolving market in the world, and what may be true when we wrote this article, could be wrong by tomorrow. I cannot stress strongly enough how incredibly complicated and risky the Crypto environment is. Furthermore, there are so many people in this space with such little knowledge who will try and advise you. I strongly urge anyone reading this article to contact us for our advice or take very cautious steps if you choose to go alone.
Things to Consider Before Investing
We urge you to consider the following before making an investment in Cryptocurrency ETFs:
1. Market Volatility
The cryptocurrency market is highly volatile. We recommend keeping this in mind when allocating a portion of your investment to Cryptocurrency ETFs.
2. Regulatory Changes
The cryptocurrency market is still very new, and regulatory changes can impact your investment.
We advise staying abreast of any changes that might affect the market.
At the point in time of writing this article, Cryptocurrencies on the whole were not regulated and there was no formal plan in place to regulate them. Crypto operates in the decentralised Finance world and is different from normal, Fiat currencies, it is what 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 they can eat into your returns.
The Best Cryptocurrency ETFs in the Market
While we don’t publicly endorse any particular 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 analyzing the performance, management, and expense ratios of these ETFs before making an investment decision.
Conclusion
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 or indeed have experience then we urge you to speak to a professional.
