In recent years, the crypto market has been making headlines left, right, and center as people make and lose fortunes on them.
This has attracted investors aplenty, individuals and institutions alike. However, the large potential for profit comes at high risk, as these markets have been known to be highly volatile. For that reason, cautious investors find it necessary to invest in alternate vehicles that offset some of this risk. Enter crypto ETFs.
About crypto ETFs
In essence, these are exchange-traded funds that track the prices of one or more cryptocurrencies. Instead of holding actual cryptocurrencies, they are backed by futures contracts of these tokens, but they can also be backed by the physical coins themselves. However, at the time of writing, the SEC has not approved any cryptocurrency-backed ETFs, and as a result, such funds tend to be scarce. On the other hand, the first futures-backed crypto ETF received SEC approval in October of 2021.
Some other ETFs in this space will provide indirect exposure to the markets by investing in blockchain-related companies. These could be companies that run mining plants, those that hold the majority of their assets in crypto, or those that are involved in crypto in one way or another.
Why invest in crypto ETFs?
For one, by their very nature, ETFs do not require active management once you invest in them. Usually, they have a fund manager whose job is to ensure the prosperity of the fund. What’s more, they allow you to hold a variety of assets in one single trade, be it crypto futures or stocks to crypto companies. This serves to offset the risk you would be exposed to if you had invested in a single cryptocurrency or a single company’s stock. Additionally, it helps diversify your portfolio, which is always a good idea in investing.
There have been several reports over the years of hackers stealing cryptocurrencies from right under investors’ noses. The tokens are prone to malicious cyber-attacks. ETFs solve this issue while still giving you exposure to the highly profitable crypto market. What’s more, since they are regulated, ETFs are tax-efficient as opposed to cryptocurrencies, whose taxation tends to be fairly complicated.
Top Crypto ETFs for your portfolio
Amplify Transformational Data Sharing ETF
This fund holds north of $1 billion in assets under management (AUM), making it one of the biggest funds in the digital assets space. It invests in blockchain-related companies and holds stocks of 45 of these firms. Some of these include Coinbase Global, a company behind a leading crypto exchange, and Nvidia, a semiconductor and GPU manufacturer. There are also a few mining companies such as Hut 8 Mining and Hive Blockchain Technologies, as well as MicroStrategy which holds the majority of its assets in Bitcoin. Therefore, if you add this ETF to your portfolio, you will gain exposure to the price action of the top cryptocurrencies, all at a 0.71% annual expense ratio.
Bitwise 10 Crypto Index Fund
Originally, this ETF began as a private placement fund, but this soon changed to enable its public trading over the counter. It is an actively managed fund, which is why its expense ratio is characteristically high at 2.5%. This would mean that for a $10,000 investment, you would incur $250 in annual expenses.
This fund’s portfolio contains the top 10 cryptocurrencies by market cap, and it is rebalanced every month to account for fluctuations in their prices. Bitcoin and Ethereum, the two largest cryptocurrencies since their inception, account for 61% and 28% of the portfolio, respectively. The remainder is populated by the next eight biggest cryptocurrencies.
Siren Nasdaq NexGen Economy ETF
This is another ETF that invests in shares of blockchain-related companies. It contains a total of 64 stocks. Some of these are tech giants who have ventured into cryptocurrencies, such as IBM. It also holds shares of JPMorgan Chase, a renowned bank that has forayed into the crypto space. By investing in this portfolio, investors get a front-row seat to the growth of the crypto industry and simultaneously get to capitalize on the gains of historically successful companies. Amazingly, this fund’s expense ratio is only 0.68%.
Bitwise Crypto Industry Innovators ETF
Launched in 2021, this is a fund that focuses on innovators and pioneers in the cryptocurrencies space. This means investors of this fund are likely to get exposed to the upswings common in these digital assets markets. The fund consists of 30 stocks, most of which are miners of bitcoin or companies that hold this asset. The top holdings of this ETF include Coinbase, a globally renowned exchange, and MicroStrategy, a major BTC holder. Another notable mention is Silvergate Capital, which recently bought the stablecoins of Facebook’s parent company, Meta. However, its expense ratio is a bit on the high side, coming in at 0.85%.
Global X Blockchain ETF
Launched in 2021, this fund focuses on companies participating in various blockchain activities such as the mining and integration of cryptocurrencies. In its portfolio are stocks of 25 of these companies. Its top holdings include Coinbase Global, Marathon Digital, Riot Blockchain, Northern Data, and Voyager Digital. In total, it holds roughly $90 million in assets under management and offers an expense ratio of 0.5%. If you’re looking to invest in miners and companies that contribute to the development of crypto products, this ETF would be your best bet.
Exchange-traded funds offer investors a low-risk way of investing in the highly volatile crypto market. Be it crypto futures or stocks to blockchain-related companies, these funds provide exposure to these highly profitable markets, and they do not need active managing once you invest in them. However, being speculative assets, they still carry some risk. To that end, any opinions expressed in this article should not be construed as investment advice.