Investing in Cryptocurrency ETFs – 101

The cryptocurrency market has seen a lot of ups and downs over the last year. However, not everything that has been happening in the industry has been negative. For instance, you can access cryptocurrency ETFs, which not only makes your life easier but also makes dealing with crypto trading much more efficient. 

As you know, ETFs or exchange-traded funds are forms of traded funds that make it easier to swap traded products and have been around for about two decades. On the other hand, crypto ETFs are generally the same in that they are tradable instruments used for tracking the value of cryptocurrencies. So join us as we explore more about this fascinating new trend.

What are Crypto ETFs?

An ETF also referred to as a basket, is an assortment of tradable assets investors can buy and sell, much like shares on the stock market. They are also tools used to track how certain indexes or particular commodities, in this case, cryptocurrencies, perform.

Furthermore, they allow you to own tradable assets such as gold or cryptocurrencies without taking physical ownership. 

This makes ETFs excellent tools for gaining experience in the crypto market as a budding investor. You also don’t have to worry about other problems crypto traders who hold the actual digital coins have to deal with.

For instance, they have to ensure their cryptocurrencies are safe and securely stored to avoid losing or having them stolen. In addition, when dealing with ETFs, you don’t have to worry about regulations or lack thereof in the crypto industry. 

ETF companies mitigate these challenges by pooling a basket of various cryptocurrencies and holding possession. They then divide the crypto into each investor’s investment value in the ETF, but they never get to have it themselves. Check out this list for some of the best ETF brokers in the UK. 

Types of Crypto ETFs

ETFs Backed by Physical Crypto

These are ETFs that first buy and hold actual cryptocurrencies to underpin the value of their offering to investors. Furthermore, if you buy into this type of ETF, your investment value will rise if the crypto’s value rises, and the contrary is true. It’s also one of the most basic ways to invest in crypto ETFs. 

ETFs Backed by Futures

As the name of these ETFs suggests, their value is not based on cryptocurrencies but on that of futures contracts. A futures contract sets the value of an asset and the future sell date. This works well with crypto because it’s hard to store and mitigates some of the volatility experienced in the industry.

ETFs based on Stocks

These are also the last type of ETFs. Stocks-based ETFs aim to provide exposure to some of the companies and technologies behind cryptocurrencies. For instance, some crypto ETFs consist of exchanges, mining firms, and hedge funds involved in the crypto industry.

Therefore, if you’re a firm believer in blockchain technology and cryptocurrencies, these are an excellent way to show your support. 

Benefits of Crypto ETFs

  • ETFs are an excellent way to raise awareness for the blockchain industry and act as validation indicators for cryptocurrencies globally. 
  • Because they are traded in the stock exchange like ordinary shares, they stand a great chance of being picked up by institutional investors. 
  • You can buy and trade crypto without the hustle of holding it in your possession. 
  • ETFs also work with short, medium, or long-term investment strategies. 
  • They have great potential to influence regulation, reducing the volatility and market manipulation prevalent today. 

Risks Involved With Crypto ETFs

  • ETF fees are high and a significant barrier to entry for many. 
  • They do not offer actual ownership of cryptocurrencies but a way to track their value. 
  • They can be complex and hard to price. 

Conclusion

If you’re looking to diversify your investment portfolio, then we’re more than willing to bet that cryptocurrencies are one of your options, even if not a top one. And we totally understand why. The crypto market has taken a dive, and with it, most of the value of many inventors’ portfolios, and it’s only reasonable to be wary. 

But if we set fear aside for one moment and look at what else has been transpiring in the crypto industry, such as the introduction of ETFs. You will see there is light at the end of this tunnel, and once the industry picks up on such trends, the crypto train will be once more unstoppable.

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