ETFs are convenient and easy to trade. They can even provide access to markets that can be difficult to access. Naturally, the cryptocurrency space is a good target for such ETF! Here, we will present the stakes of having crypto ETFs and 9 of the best crypto ETFs already available.
Crypto is becoming more and more popular, and more and more people are interested in acquiring bitcoins or altcoins. But many crypto-curious still consider buying cryptocurrencies on exchanges as quite burdensome or even opaque. In addition, holding cryptocurrencies, with the technical implications like hotwallet/coldwallet, keys, ledger, etc., are still very confusing and scary for new investors. And finally, compared to directly owning bitcoin, ETFs have the added benefit for investors to have some possible tax advantages scheme with reduced capital gains taxes depending on the countries! I know a lot of people that would like to invest in bitcoin through their Roth IRA.
Crypto ETF: a convenient alternative to stock picking or to holding coins!
This is why you are currently reading a guide on how to invest in cryptocurrencies without buying any crypto!
The previous article of this guide showed you 16 possible stocks to invest in. Now, you could be thinking that picking up the right stock among these is like the casino. You are right. Just like picking the right cryptocurrency is also the casino. Rather than choosing and investing in individual stocks and bearing immense risks, you also have the possibility to invest in diversified ETFs.
What is an ETF? It’s simple! An ETF, for Exchange Traded Funds, can be understood as a passive tracker of an index, a sector commodity or another asset. When you buy a share of an ETF, you have a stake in the basket of investments tracked by the ETF. There is no active management like in a fund, and the entry cost for investors is minimal.
You might have not realized it yet, but if you own a S&P 500 ETF, you are already exposed to Blockchain, and even Bitcoin! It is the same for retirement plans of investment portfolios allocated in a total market index fund.
Indeed, as described in the list of stocks above, these funds include companies that are already involved in either blockchain, or crypto mining or even hold bitcoin. Just like Tesla that you almost can’t avoid in any ETFs now, where you would also have Google, Microsoft or Apple… If you invested in ARK Fintech Innovation ETF, you are holding some Coinbase stocks!
There are several SEC (Security and Exchange Commission, the US financial regulator) approved ETFs that track companies that own bitcoins or invested in blockchain technology.
- BTCR (Volt Bitcoin Revolution ETF)
BTCR tracks companies with a significant possession of BTC in the company’s treasury. Its largest holdings are PayPal, MicroStrategy, and Square as the number 1,2,3 top holdings
- BLOK (Amplify Transformational Data Sharing ETF)
The largest blockchain ETF in total assets. BLOK’s largest holdings are PayPal, MicroStrategy, and Square as the number 1,2,3 top holdings
- BLCN (Siren Nasdaq NexGen Economy ETF)
BLCN’s largest holdings are Coinbase, Accenture, and Square as the number 1,2,3 top holdings
- LEGR (First Trust Index Innovative Transaction & Process ETF)
LEGR’s largest holdings are NVIDIA, Oracle as number 1,2,3 top holdings
Direct crypto ETFs
The ETFs presented just above are indirect ETFs. They do not expose you directly to cryptocurrencies on traditional markets. A “direct” Crypto ETF holding bitcoin or cryptocurrencies is yet to come in the US. It would be an important step, offering traditional investors the ability to invest in digital currencies like Bitcoin or Ethereum without having to trade on crypto exchanges! For now, such Bitcoin ETFs exist only in Canada and Brazil. For our Canadian friends, TFSA makes holding Bitcoin tax-free thanks to the following ETFs!
- BTCC (Purpose Bitcoin ETF)
The Purpose Bitcoin ETF is backed by physical bitcoins holdings, not derivates! Investors can thus easily and efficiently access the emerging asset class of crypto-currencies without the risk associated with holding themselves the coins. It trades on the Toronto Stock Exchange (TSX). It has a management fee of 1.00% per year. Regarding the currencies used, here is the breakdown: BTCC: Canadian dollar, BTCC.U: U.S. dollar, BTCC.B Non-hedged currency
- ETHH (Purpose Ethereum ETF)
Similar to the Purpose Bitcoin ETF, but with Ethereum!
- EBIT (Evolve Bitcoin ETF)
Almost a clone of the Purpose Bitcoin ETF. The Evolve Bitcoin EBIT ETF provides investors with exposure to the daily price movements of bitcoin.
- BTCX (CI Galaxy Bitcoin ETF)
Another Canadian BTC ETF. Backed by real bitcoins also. However, management fees are only 0.4%, which should make it the 1st choice for anyone willing to invest in a Bitcoin ETF.
Supposedly all Purpose ETFs, Evolve ETF and CI Galaxy Bitcoin ETF are backed with actual Bitcoin or ethereum stored with Gemini. Any proofs ? No idea. I would be interested in having proof of such statements and the possibility to monitor their reserves.
- QBTC11 (QR Capital Bitcoin ETF)
ETF authorized by the Comissão de Valores Mobiliários (CVM, the Brazilian Securities and Exchange Commission) and the Brazilian Stock Exchange. Regarding this bitcoin ETF, unfortunately, I didn’t manage to retrieve any good info, as I don’t speak Portuguese nor did I find good English sources. Would be interested if anyone can find the management fees and if the ETF is backed by real bitcoin, if yes how is it stored/monitored?
How to access Canadian ETF outside of Canada ?
This part only concerns US inhabitants. I could not find any good info for the rest of the world. Americans may have the possibility to invest in the previously mentioned Canadian ETFs. It seems it can be done thanks to the broker Fidelity. It involves simple steps, in order to activate your account to international trading.
- Log in to your Fidelity account and sign up for international trading.
- Call Fidelity for “international trading”. An agent will read you a bunch of disclaimers.
You can then trade the BTCC on Fidelity’s website. Remain careful on the fees to place an order or to purchase for a retirement account.
Bitcoin futures ETF: Proshares’ Bitcoin Strategy
No U.S. or European ETF offers Bitcoin-backed ETF funds. However, as you must have learned, there is now a bitcoin ETF futures approved! BITO, Proshares’ Bitcoin Strategy ETF!
- BITO (ProShares Bitcoin Strategy ETF)
BITO’s ETF tracks CME bitcoin futures, or contracts speculating on the future price of bitcoin, rather than the crypto itself.
However, this is probably not the ETF you think it is.
With a “regular” ETF, like the S&P 500 ETF SPY, when you buy the ETF, the fund then uses that money to buy the stocks that make up the S&P 500. So, when buying the SPY ETF, you basically own a portion of a pot that owns all of the stocks. Simple right ? Seems logical.
A bitcoin backed ETF, like the one presented earlier, work the same way. You buy the ETF, the fund uses that money to buy some real bitcoin, and holds it for you.
Well, such bitcoin backed ETF is not allowed in the US yet. However, a Bitcoin Future ETF is. It’s more complicated than a “normally backed” ETF. Pragmatically speaking, no one is actually buying and holding bitcoin for you with the money you give to the ETF. Instead, the ETF will hold some cash equivalent and use it to bet on the price of the bitcoin with futures exchanges. Here only the futures exchanges will actually hold bitcoin.
The issue with this type of futures ETF is that it has quite some expenses to run, and that will eat away the performance of the ETF. The easiest way to understand it is to look at other commodities futures ETF versus spot price of the commodity. Here is for example for oil.
Fundamentally, trading a commodity (like oil, or bitcoin), is not the same as trading the futures. Future based commodities ETFs are more for the short term than for long-term holding. Why this difference? Well, it’s mainly due to the different expenses related to trading futures themselves, that will rack up overtime and eat away the performance of the underlying asset. If you are interested in understanding it better, I highly recommend this very good article.
The fact that that this future ETF was approved is that in the eyes of the SEC, it is safer for investors compared to a bitcoin backed ETF. Still, I actually do not recommend using ETFs based on Futures if you are in a long-term objective.
The latest rumor regarding crypto ETF is that Grayscale Investments plans to convert their bitcoin fund into a spot ETF for the US!
Also, just recently, the Australian SEC ( Australian Securities and Investments Commission (ASIC)) issued some guidelines allowing funds to launch ETFs that invest directly in cryptocurrencies or in crypto-adjacent assets, such as crypto miners and coin exchanges. Bitcoin and Ethereum-backed investment funds trading on the ASX will probably be coming in the next few months!
I will keep you informed as soon at one more ETFs will be available in other countries!
Issues with (crypto) ETFs
Now, just some word of advice regarding particular issues that comes with ETFs and especially crypto ETFs.
Do not FOMO, and buy an ETF that just opened. Even if it’s a sexy crypto ETF! Upon launch, ETF will trade at a premium price, a price above their underlying asset value. So just watch out closely for this premium.
Crypto can be traded 24/7. ETFs are traded like traditional markets hours. ETFs could be at a slight disadvantage regarding price fluctuations on weekends. On the long term, it should not really matter. So be careful about that fact if you are a short-term trader.
This article is part of a larger suite of articles that focus on the way to invest in Bitcoin, Ethereum, Altcoins and Blockchain without buying any coins. For ease of readiness instead of doing a very long article, with too much info condensed, I’ve separated the content in different articles as the following. Please, proceed to the following article that might interest you.
- Expose yourself to crypto without buying any crypto (current article)
- The best Bitcoin and Crypto stocks
- How to invest in ETF bitcoin and crypto (current article)
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