Cryptocurrency exchanges are a nuanced business when it comes to trading. Therefore, some investors prefer to trade or own cryptocurrency through an exchange-traded fund or ETF. In terms of functionality, cryptocurrency ETFs are not much different from traditional ETFs and popular mutual funds. Cryptocurrency ETFs are traded through exchanges such as the New York Stock Exchange (NYSE) or the US Nasdaq Stock Market. This form of exchange makes it easier to trade cryptocurrencies. Traditional ETF tracks the index or basket of assets. Cryptocurrency ETF, on the other hand, tracks one or more digital tokens.
What is cryptocurrency ETF?
A cryptocurrency ETF is like a fund that allows one to access a diversified portfolio of cryptocurrency tokens or coins for investors to trade in. ETFs offer transparency and greater liquidity. This exposes potential shareholders to the token or currency and individual investors can own the token in the crypto market.
With an ETF, an investor does not have to manage multiple digital wallets just for acquiring and tracking different cryptocurrencies.
How does it work?
In traditional ETFs, the fund provider owns assets (stocks or commodities) that must be tracked. Shares of this are sold to investors. Likewise, an organization that offers cryptocurrency ETFs and manages the funds must own the underlying asset (a digital token or currency) it wishes to track.
The fund is exposed for purchase by potential investors. After that, ownership of these tokens is given as shares. By owning the shares of the fund, investors own the tokens directly.
What are the options for investors regarding cryptocurrency ETF?
Currently, there are not many options for investors regarding cryptocurrency ETF. Several countries, such as India, have yet to determine their stance on cryptocurrency. In such a scenario, cryptocurrency ETFs are not even considered in many parts of the world. However, in the few places where their application has been approved, different platforms offer different services.
So far, Bitcoin ETFs are the most popular crypto ETFs out there. However, Bitcoin ETFs (such as Bitcoin Investment Trust) operating in the US do not directly own the currency. Instead, they own equity portfolios with exposure to blockchain technology. There are also Blockchain ETFs that use blockchain technology to provide cryptocurrency assets to investors. Often crypto ETFs charge a management fee of around 2 percent.