What is a cryptocurrency ETF?<\/h3>\n
An ETF is a collection (often called a \"basket\") of assets that can be bought and sold on a stock market the same way investors can trade ordinary shares in a company. ETFs are investment funds designed to track the performance of a particular index, such as the NASDAQ 100's QQQ, or a specific commodity or asset.<\/p>\n\n\n
For example, a gold ETF allows you to invest in the value of gold without ever having to own any gold or find somewhere to store it.<\/p>\n\n
Cryptocurrency ETFs are designed to give investors exposure to the cryptocurrency market. These indexes track the price of 1 or more digital coins or tokens. This lets investors add the value of crypto to their portfolio without some of the risks associated with actually owning any digital currency. Some of these risks include:<\/p>\n
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- Custody.<\/strong> While the vast majority of cryptocurrency exchanges hold funds on your behalf, some users are still nervous about the storage of cryptocurrencies. This may be due to the long history of exchange hacks, or a misunderstanding that they need to manage the coins themselves.<\/li>\n
- Regulation.<\/strong> Most cryptocurrency exchanges are unregulated, although an increasing number are choosing to obtain relevant licensing. Despite this, user funds in most countries are not protected by the same protections as money in a bank account or stock trading platform.<\/li>\n
- Mistakes.<\/strong> Cryptocurrencies are unforgiving \u2013 send funds to the wrong address and they are likely lost forever. While investors don't need to move cryptocurrencies from one address to another, the reputation for difficulty is still off-putting.<\/li>\n<\/ul>\n
Cryptocurrency ETFs largely avoid most of these risks by taking custody of funds on behalf of investors and packaging them into a highly-regulated investment, which is served through traditional outlets, such as stock brokers.<\/p>\n\n
The simplest way for a crypto ETF to track the price of a digital currency is for the ETF company to purchase and store that crypto, and then divide shares in the ownership of those coins between stakeholders. However, another model is for the fund to own futures contracts. These contracts allow investors to essentially \"bet\" on whether they think the price of a given cryptocurrency will rise or fall in a set period of time. Futures-based cryptocurrency ETFs were the first type to be approved by the SEC.<\/p>\n
Compare online brokers to buy cryptocurrency ETFs<\/h3>\n
\n\n <\/div>\n\n\n - Regulation.<\/strong> Most cryptocurrency exchanges are unregulated, although an increasing number are choosing to obtain relevant licensing. Despite this, user funds in most countries are not protected by the same protections as money in a bank account or stock trading platform.<\/li>\n