For much of the past decade, the crypto and traditional finance markets have been separate, with very little cross-over between the two. However, as digital currencies have increasingly become recognised as a legitimate form of investment—and now form part of many a diversified portfolio—crypto-related investments are gaining traction in traditional markets.
The recent growth of crypto Exchange-Traded Funds (ETFs) signifies a pivotal development, allowing investors to tap into the cryptocurrency market’s potential while still investing in a familiar framework. Moreover, the narrative around crypto ETFs is gaining momentum, with industry titans like BlackRock potentially entering the fray.
Investors looking to add crypto to their portfolio while maintaining a sense of familiarity grounded in traditional investments may benefit from learning how crypto ETFs work, their potential, and, of course, their risks.
Related: How to Invest in AI ETFs
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What are Crypto ETFs?
ETFs may be a familiar concept for those already involved in stock investing. Essentially, they are investment funds traded on stock exchanges, much like individual stocks, offering a simple way to invest in a broad spectrum of assets. But what happens when this traditional finance tool meets the digital frontier of cryptocurrencies? We get crypto ETFs.
Crypto ETFs allow investors to gain exposure to cryptocurrencies without actually owning the digital asset. Essentially, they track the performance of cryptocurrencies, such as Bitcoin or Ethereum, and mirror the assets’ price movements.
The primary distinction between crypto ETFs and traditional ETFs lies in the nature of the underlying assets. While conventional ETFs might hold various assets like stocks, bonds, or commodities, crypto ETFs exclusively focus on digital currencies or companies in the crypto industry.
Investors can buy and sell crypto ETFs on traditional stock exchanges, providing a familiar and regulated environment for those looking to explore digital assets. This means investors can use their regular brokerage accounts to invest in cryptocurrencies indirectly, avoiding the complexities of dealing with cryptocurrency exchanges, wallets, and private keys.
Crypto ETFs are a bridge connecting the world of traditional finance with the novel realm of digital currencies, offering a regulated and familiar platform for investors to gain exposure to the cryptocurrency market.
Types of Crypto ETFs
There is an array of options when it comes to crypto ETFs, which can be tailored to investor preference and risk-appetite. Broadly, crypto ETFs can be classified into single-asset, multi-asset and industry ETFs, each of which can further be segmented into ‘spot’ and ‘futures’.
Single Asset Crypto ETFs:
Single-asset crypto ETFs focus on one type of cryptocurrency, such as Bitcoin or Ethereum. These ETFs provide direct and concentrated exposure to the price movements of a specific digital asset, making them suitable for investors with a firm belief in the future performance of that particular cryptocurrency.
Multi-Asset Crypto ETFs:
Multi-asset crypto ETFs are the answer for investors looking for diversification within the cryptocurrency space. These funds invest in various digital assets, spreading the risk across different cryptocurrencies. This diversified approach can help mitigate the impact of poor performance of a single asset on the overall portfolio.
Crypto Industry ETFs:
These ETFs focus on companies operating in the crypto industry rather than cryptocurrencies themselves. These companies could include centralised crypto exchange providers, Bitcoin mining operators and tech companies adopting crypto or blockchain-based solutions.
Within these broad categories, crypto ETFs can further be distinguished based on whether they deal with spot or futures:
Spot ETFs:
Spot ETFs directly hold the underlying cryptocurrency, such as Bitcoin or Ethereum. The value of these ETFs closely follows the spot price of the digital assets they represent. Spot ETFs offer investors the benefit of direct exposure to cryptocurrency prices but also come with the associated risks of the highly volatile crypto market.
Futures ETFs:
Instead of holding the actual cryptocurrency, futures ETFs invest in futures contracts on the digital asset. These contracts are agreements to buy or sell the cryptocurrency at a predetermined price at a specified future date. Futures ETFs provide exposure to cryptocurrency price movements without the need to hold the underlying asset, potentially mitigating risks related to the custody and security of digital assets.
When choosing between spot and futures crypto ETFs, several factors come into play for investors. Spot ETFs attract those desiring a direct link to the cryptocurrency market as they reflect the live price of the underlying asset. Investors with an optimistic view of immediate cryptocurrency price trends often favour spot ETFs.
On the other hand, futures ETFs might be more fitting for those seeking some buffer from day-to-day changes in cryptocurrency values. Given that these ETFs often involve contracts set for future execution, they can offer a more stable exposure to the volatile crypto market.
What Crypto ETFs are Available in Australia?
For Australian investors eyeing the crypto market, several crypto ETFs are available on the Australian Securities Exchange (ASX) and Cboe Australia (CXA).
Here are a few to consider:
BetaShares Crypto Innovators ETF:
Ticker: CRYP
Exchange: ASX
The BetaShares Crypto Innovators ETF seeks to provide exposure to the broader cryptocurrency economy by tracking the performance of an index comprising 30 cap-weighted stocks from around the globe. These companies are actively involved in the cryptocurrency ecosystem, offering investors a way to tap into the growth of the digital assets sector without directly holding cryptocurrencies.
Global X 21Shares Bitcoin ETF:
Ticker: EBTC
Exchange: CXA
The Global X 21Shares Bitcoin ETF aims to offer investors returns that track the price of Bitcoin in Australian dollars. By holding shares in EBTC, investors gain an interest in Bitcoin stored in cold storage by Coinbase, the world’s largest custodian of cryptocurrencies. This storage method, away from internet access, adds an additional layer of security to the digital assets.
Global X 21Shares Ethereum ETF:
Ticker: EETH
Exchange: CXA
Like its Bitcoin counterpart, the Global X 21Shares Ethereum ETF tracks the price of Ether in Australian dollars, providing shareholders with an interest in Ether held in cold storage by Coinbase. This ETF offers a secure and regulated way for investors to gain exposure to the second-largest cryptocurrency by market cap.
There is also a wide range of ETFs available in overseas markets. Before diving in, investors are encouraged to thoroughly research each ETF and consider how it aligns with individual investment goals and risk tolerance.
Are Crypto ETFs Safer than Other Crypto Assets?
The crypto market is often characterised by volatility due to its small size, which naturally leads investors to question the safety of various investment options within this space. Several factors come into play when assessing the safety of crypto ETFs compared to other crypto assets.
Regulation and Oversight:
Crypto ETFs operate within the regulated framework of traditional stock exchanges and funds. They are subject to regulatory scrutiny and compliance standards, which can provide an additional layer of security and transparency compared to investing directly in cryptocurrencies on unregulated crypto exchanges.
Diversification:
Especially with multi-asset crypto ETFs, investors can achieve a level of diversification that is harder to attain with individual crypto assets or crypto-related stocks. Diversification can help spread risk, potentially mitigating the impact of adverse price movements in a single asset on the overall investment.
Ease of Access and Management:
Investing in crypto ETFs allows investors to manage their investments through traditional brokerage accounts, avoiding the complexities and potential security risks associated with crypto wallets and private keys. This ease of access and management can be considered a safety feature for those unfamiliar with holding crypto directly.
While crypto ETFs incorporate several features that can enhance safety and manageability compared to investing directly in individual cryptocurrencies, they are not entirely risk-free. Investors should conduct thorough research and consider their risk tolerance, investment goals, and market knowledge before venturing into crypto ETFs or other crypto assets.
Is BlackRock Creating a Crypto ETF?
In an ambitious move, BlackRock, the world’s largest asset management firm, has taken a step that could reshape the crypto landscape. The firm filed for SEC approval of a spot Bitcoin ETF on June 15, sparking renewed hope across the crypto sector. This move comes despite the SEC’s historical stance of rejecting applications for Bitcoin ETFs aiming to track the cryptocurrency’s spot market price.
BlackRock’s substantial influence in the financial world and its successful iShares family of ETFs have positioned it as a likely contender to break new ground in the crypto ETF space. The filing has led to optimism within the industry, with several firms reapplying for their own spot Bitcoin ETFs.
The proposed spot Bitcoin ETF by BlackRock, and similar filings from firms like Ark Investment Management and WisdomTree, represent a departure from the crypto ETFs previously approved by the SEC. While the regulator has given the nod to ETFs tracking cryptocurrency futures or companies with indirect crypto exposure, a spot Bitcoin ETF would directly track the current price of Bitcoin, requiring the fund to back all shares with BTC.
In addressing the SEC’s concerns, BlackRock’s application takes a strategic approach, proposing a fund with robust mechanisms to prevent unauthorised diversions of customer assets and outlining strategies to address the regulatory challenges plaguing crypto exchanges. This attention to regulatory detail suggests that BlackRock has closely analysed the SEC’s previous concerns and legal actions against major crypto exchanges to craft an application that mitigates similar risks.
The ripple effect of BlackRock’s filing is evident as asset management giants like Fidelity, Invesco, and WisdomTree have revisited their ambitions for spot Bitcoin ETFs. These firms are proposing solutions to meet the SEC’s market manipulation and fraud concerns, collectively contributing to developing a more secure and compliant Bitcoin ETF ecosystem.
While the spot Bitcoin ETF applications filed by BlackRock and others are yet to be approved, investors still have access to a range of other crypto ETFs in Australia and overseas markets. As with any investment decision, ensure you take the time to do your research before making a decision and consult with a financial advisor if required.
This article is not an endorsem*nt of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class. Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.
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Frequently Asked Questions (FAQs)
What is an example of a crypto ETF?
Several examples of crypto ETFs available in Australia include:
- The Global X 21Shares Bitcoin ETF (EBTC).
- The Global X 21Shares Ethereum ETF (EETH).
- The BetaShares Crypto Innovators ETF (CRYP).
EBTC and EETH attempt to provide investors with returns that track the prices of Bitcoin and Ethereum, respectively, in Australian dollars, while CRYP offers exposure to companies involved in the broader cryptocurrency economy.
Is a Bitcoin ETF a good idea?
The concept of a Bitcoin ETF is considered by many as a positive development in the financial sector, as it provides a more accessible and regulated way for a broader audience to gain exposure to Bitcoin, thereby potentially increasing the adoption and acceptance of cryptocurrencies. It can bridge the gap between traditional finance and the digital asset sector, providing additional legitimacy to Bitcoin. However, like all innovations, a Bitcoin ETF raises challenges and concerns, such as regulatory hurdles and market risks, which must be addressed for its successful implementation and acceptance.
Are crypto ETFs safe to invest in?
Some investors consider crypto ETFs safer than holding crypto directly because they are regulated financial products managed by professional fund managers. However, they are still subject to market risks, including the inherent volatility of cryptocurrencies, regulatory developments, and technological vulnerabilities. Investors should assess their risk appetite and conduct due diligence before investing.
Are crypto ETFs a good investment?
Investing in a crypto ETF can be a good option for those seeking exposure to cryptocurrencies without dealing with the complexities of directly owning and managing them. It provides diversification and is managed by professional fund managers. However, like all investments, crypto ETFs come with risks, and potential investors should carefully perform thorough research and consider their risk tolerance and investment goals before investing. Consulting with a financial advisor before investing can also be worthwhile.
As an expert in the field of cryptocurrency and finance, I have closely followed the evolving landscape of digital assets and traditional markets over the past decade. My comprehensive knowledge is derived from hands-on experience, thorough research, and a deep understanding of the complexities involved in the intersection of crypto and traditional finance.
In the article you provided, the focus is on the growing integration of crypto and traditional finance through the emergence of crypto Exchange-Traded Funds (ETFs). Let me break down the key concepts discussed in the article:
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Introduction to Crypto and Traditional Finance Integration:
- The article highlights the historical separation of crypto and traditional finance markets.
- Acknowledges the increasing recognition of digital currencies as a legitimate investment.
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Crypto ETFs and Traditional Finance Framework:
- Describes how crypto ETFs serve as a bridge between traditional finance and the cryptocurrency market.
- Emphasizes the role of ETFs in providing a familiar and regulated platform for investors to gain exposure to digital assets.
-
Types of Crypto ETFs:
- Single Asset Crypto ETFs: Focuses on one specific cryptocurrency, such as Bitcoin or Ethereum.
- Multi-Asset Crypto ETFs: Offers diversification by investing in various digital assets.
- Crypto Industry ETFs: Concentrates on companies in the crypto industry rather than cryptocurrencies.
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Spot vs. Futures Crypto ETFs:
- Spot ETFs: Hold the actual underlying cryptocurrency, providing direct exposure to price movements.
- Futures ETFs: Invest in futures contracts on the digital asset, offering exposure without holding the underlying asset.
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Crypto ETFs Available in Australia:
- Mentions specific examples of crypto ETFs available on the Australian Securities Exchange (ASX) and Cboe Australia (CXA).
- Provides details on the BetaShares Crypto Innovators ETF, Global X 21Shares Bitcoin ETF, and Global X 21Shares Ethereum ETF.
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Safety of Crypto ETFs Compared to Other Crypto Assets:
- Discusses factors contributing to the perceived safety of crypto ETFs, including regulation, oversight, diversification, and ease of access.
- Highlights that while crypto ETFs offer certain safety features, they are not entirely risk-free.
-
BlackRock's Entry into Crypto ETFs:
- Details BlackRock's filing for SEC approval of a spot Bitcoin ETF.
- Explains the significance of this move in reshaping the crypto landscape.
- Addresses how BlackRock's application addresses regulatory concerns, potentially setting a precedent for other firms.
-
FAQs on Crypto ETFs:
- Provides examples of crypto ETFs available in Australia, including EBTC, EETH, and CRYP.
- Discusses the potential benefits and challenges of a Bitcoin ETF.
- Offers insights into the safety and suitability of investing in crypto ETFs.
In summary, the article serves as a comprehensive guide for investors interested in understanding the integration of crypto and traditional finance through the lens of ETFs. It covers various types of crypto ETFs, their availability in Australia, safety considerations, and the potential impact of industry giants like BlackRock entering the space.
