Exchange traded funds or ETFs is basically a fund that contains cryptocurrencies. This ETF can track the charge or the cost of one or more digital currencies or tokens. Like common stocks, ETF is also traded daily and investor sales or purchases consequently cause the fluctuation in the rate of cryptocurrency ETF.
The working of the Exchange Traded Funds
Low cryptocurrency ownership cost is one of the important and helpful benefits of ETF to investors. It also outsources the steep learning curve that is required in trading cryptocurrencies.
Two types of cryptocurrency ETFs are there;
- In the first type, physical cryptocurrencies are used. The investment institutions buy the cryptocurrencies and their ownership is given as shares. In this type, there we can find an invisible type of ownership of the funds by the investors in this purchasing of the shares from the ETF. So in this type, there is no direct or outright ownership of the ETF funds is seen. It will also help the owners to gain crypto exposure without the accompanying expense.
- In the second type, we find synthetic variants that track different derivatives of cryptocurrencies like futures contracts and exchange traded products (ETPs) of the cryptocurrency.
It was the Proshares Bitcoin Strategy ETF which started trading in 2021 an example of ETF trading. This ETF is the type that tracks Bitcoin futures prices.
The current status of the Cryptocurrency exchange traded funds
Exchange traded funds boost investments using cryptocurrencies. It will increase the liquidity of cryptocurrencies thereby increasing the adoption of cryptocurrencies for investment purposes.
Crypto ETFs are a budding group of digital assets. The uncertainty in its regulatory status is still defining its current status in the economy. But directly or indirectly, Crypto exchange traded funds are the best way to own cryptocurrencies. There are many benefits to crypto Exchange traded funds. They are;
- In exchange traded funds of crypto there are no additional expenses for owning cryptocurrencies. They are the best way to acquire exposure to crypto without any additional charges. This is possibly one of the greatest benefits of crypto ETFs. Custody charges are there if we are to own physical cryptocurrencies. Digital wallets to securely store these cryptocurrencies also charges you a lot. The annual charges of the digital wallets along with additional expenses will add up to a pretty little sum. Transaction and network fees also add to this sum which in turn increases the expenses of owning and storing the cryptocurrencies. In ETFs, there are no hidden charges or additional expenses for owning the cryptos. So ETF providers are saving the cryptocurrency owners from paying all these little big sums.
- In cryptocurrency ETFs, we could get exposure to the fast rising asset class which is only a fraction of the actual cost of purchasing the cryptocurrencies. Recent years witnessed a skyrocket in the price of crypto coins. The popularity, demand and price of bitcoin increases very much in these past few years. For an average investor, this has made bitcoin an unreachable and unimaginable asset class for them. But ETFs are affordable for everyone who wishes to do investments in the digital asset classes.
- for an average investor understanding and learning the jargon and the workings of cryptocurrencies are a bit complicated. There is a learning curve that exists in here which acts as a barrier to investments for an average investor. But Cryptocurrency ETFs are an efficient way to break this learning curve that exists between crypto investments and the average investor. It is a natural difficult faced by an average investor in understanding and grasp the meaning of cryptocurrency-related workings and terms. With ETFs, this learning curve in cryptos finds a permanent and efficient solution.
- Security issues are always the primary concerns related to cryptocurrencies. Since its beginning itself, hacking is one of the primary threats faced by cryptocurrencies. But the ETFs provide an added security making it highly secure which reduces the risk of hackers and other cyber-attacks.
- Apart from bitcoins and Ethereum there exists about 1500 plus digital cryptocurrencies. But the drawback is that the crypto institutions still fail in the distribution of all of the digital; tokens. But with Crypto ETFs, it has now become easier to get all of these digital tokens. It has maximized the distribution of all types of crypto coins.