The global market cap of cryptocurrencies is estimated to be over $1trillion. Over the past five years there has been phenomenal growth in the interest and awareness of the digital asset around the world.

Cryptocurrency ETFs help make the digital market more accessible to those unsure on how to invest in the space.

But what are cryptocurrency ETFs and and what are the best ones to buy?

What is a cryptocurrency ETF?

Exchange-traded funds, often simply known as ETFs, is a financial investment tool that tracks the price of specific assets. Traditionally ETFs have been used for tracking the value of single investments such as gold or entire groups such as a basket of shares.

A crypto Exchange Traded Fund does the exact same but for cryptocurrency. Investors can opt to put money into an ETF that focuses on a single asset or multiple digital coins.

Crypto ETFs are traded on traditional market exchanges like Nasdaq and the New York Stock Exchange, giving more security to those who invest in them. It also means investors can put their money into crypto without needing to use a cryptocurrency exchange.

However, while ETFs may look profitable, users need to be aware of the management fees applied and understand the volatility risks of the underlying cryptocurrency.

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How does a cryptocurrency ETF work?

Crypto ETFs usually take up two types of formats. The ETF can either come as a futures-backed instrument or a physically-backed fund.

Futures-backed ETF providers do not invest in digital assets directly. Instead, the management firm focuses on betting on a crypto’s future value. The fund agrees to buy or sell digital coins at a specific price on a set date.

In a physical-backed ETF, a management firm takes part in accumulating the actual digital coins from the market. The company thereafter designs a fund that represents the value of these virtual coins. An investor’s ETF holdings increases/decreases depending on the crypto’s real time price movements.

Why Should I Buy a Cryptocurrency ETF Instead of Cryptocurrency?

To some extent, ETFs provide users with a safer investment strategy which taps into the crypto market. Users may not have adequate knowledge of how exchanges and digital wallets work. ETF investments simplify the whole process by taking advantage of a digital asset’s value.

Crypto ETFs also remove the need to register on an exchange since the instruments only require a brokerage account. More importantly, ETFs are regulated by various financial bodies as they are traded on traditional exchanges.

Cryptocurrency ETF fees

Every fund has a different fee attached to it. The charges are termed management/expense ratio fees.

The money goes towards helping the asset management company cover costs such as portfolio management and administration. The annual expense ratio for crypto ETFs tends to range from 0.3 per cent to three per cent.

Best ETFs to Buy in 2022

Grayscale Bitcoin Trust

Grayscale Bitcoin Trust (GBTC) represents a trust fund that tracks the value of Bitcoin. It monitors Bitcoin’s price action through the CoinDesk Bitcoin Price Index. The fund was launched in 2013 and managed to reap over 20,000 per cent profit until 2022.

At the time of writing, a single GBTC is trading at $18.58. Each share that a user buys is equivalent to 0.000924 BTCs. The Securities and Exchange Commission also regulates this financial instrument.

ETF regulation procedures help boost investors’ confidence since the fund is under the watchdog’s eye. GBTC has an annual fee of two per cent, and investors can access this instrument through a traditional brokerage account.

Bitwise 10 Crypto Index Fund

Bitwise 10 Crypto Index Fund (BITW) tracks the index of 10 digital currencies including Bitcoin, Ethereum, Solana, and Cardano. Bitwise also monitors these cryptocurrencies for specific risks and rebalances them monthly. The fund currently has a market price of $18.66 and applies an expense ratio of 2.5 per cent.

VanEck Bitcoin Strategy ETF

VanEck Bitcoin Strategy ETF (XBTF) functions as a trust fund that supports BTC futures investments. XBTF acts as an investment tool that focuses on Bitcoin’s future price. The fund has a market price of $28.24 and implements a management fee of 0.65 per cent.

ProShares Bitcoin Strategy ETF

ProShares Bitcoin Strategy ETF (BITO) works as an ETF that offers access to BTC without necessarily owning the crypto. The fund achieves this objective by opening up access to Bitcoin futures contracts.

BITO’s futures contracts are regulated by the Commodities Futures Trading Commission and can be traded through the Chicago Mercantile Exchange. BITO currently has a market price of $18.02 and an expense ratio of 0.95 per cent.

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