A beginner’s guide to cryptocurrency funds

Cryptocurrency funds pool investor money or provide packaged exposure to one or more digital assets. They include publicly traded crypto exchange-traded products (ETPs), index funds, mutual funds and private investment funds. Each type works differently, so the right option depends on whether you want simple price exposure, diversification, active management or other investment strategies.

When you buy most crypto funds, you don’t own the underlying cryptocurrency directly. Instead, you own shares or units in a fund that provides exposure to crypto through assets it holds or strategies it uses.

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What is a cryptocurrency fund?

A cryptocurrency fund is an investment product that gives you exposure to one or more digital assets without requiring you to buy and store the cryptocurrencies yourself. Funds can hold crypto directly, invest in crypto-related assets or use strategies such as futures contracts.

Most publicly traded crypto funds are bought and sold through traditional brokerage accounts rather than cryptocurrency exchanges.

Types of cryptocurrency funds

Crypto funds come in several forms, with important differences in what they hold, how they track cryptocurrency prices and who can invest. The main types include spot crypto funds, futures-based funds, crypto index funds, mutual funds and private funds.

Spot crypto funds and ETPs

Spot crypto funds hold the underlying cryptocurrency or assets designed to provide direct exposure to it. Their value generally follows the price of the cryptocurrency they track, minus fees and other costs.

Bitcoin and Ethereum have the largest selection of spot products, although exchange-traded products providing exposure to other cryptocurrencies are also available.

What to know:

• You get price exposure without buying or storing the cryptocurrency yourself.
• The fund or its custodian handles the underlying assets.
• You generally buy and sell shares through a brokerage account.
• The fund’s price may not perfectly match the cryptocurrency’s price.

Futures-based crypto funds

Futures-based funds invest in cryptocurrency futures contracts rather than holding the underlying cryptocurrency. Futures are agreements to buy or sell an asset at a predetermined price and date.

This means a futures fund can perform differently from the cryptocurrency itself. Factors such as futures prices, contract rollovers and market conditions can cause the fund’s returns to diverge from the spot price of the cryptocurrency.

Crypto index funds

Crypto index funds hold a basket of cryptocurrencies according to a defined set of rules. Instead of choosing individual assets yourself, you buy a single investment that follows an index.

Don’t assume an index means broad diversification. Check the fund’s current holdings and weighting before investing. A fund with dozens of cryptocurrencies can still get most of its performance from one or two large assets.

Crypto mutual funds

Crypto mutual funds are a smaller category than exchange-traded crypto products. Some provide exposure through cryptocurrency futures rather than holding the underlying assets.

For example, ProFunds offers mutual funds providing Bitcoin and Ether exposure, as well as an inverse Bitcoin fund, using futures contracts.

Private crypto funds

Private crypto funds are generally less accessible than publicly traded products and may require investors to meet eligibility requirements, such as being an accredited investor.

They can include:

• Crypto hedge funds. Actively trade cryptocurrencies, derivatives or other crypto-related investments.
• Crypto venture funds. Invest in crypto companies, blockchain projects or early-stage tokens.
• Private investment funds. May use specialized strategies that aren’t available through public markets.

Private funds can have higher minimum investments, higher fees and less liquidity than publicly traded products. Their strategies and holdings can also vary significantly, so investors should review the fund’s offering documents before investing.

Crypto funds vs. buying cryptocurrency

A crypto fund can give you exposure to cryptocurrency without requiring you to buy, store or manage the underlying assets yourself. Buying cryptocurrency directly gives you ownership and more control, but also puts more responsibility for custody and security on you.

A crypto fund may make more sense if you:

• Want crypto exposure without managing a wallet or private keys.
• Prefer buying investments through a traditional brokerage account.
• Want to hold crypto exposure alongside stocks, bonds and other investments.
• Want built-in diversification through an index or multi-asset fund.
• Want to use an eligible retirement or tax-advantaged account where available.

Buying crypto directly may make more sense if you:

• Want actual ownership and control of your cryptocurrency.
• Want to transfer crypto between wallets or use it in applications.
• Want to trade or transact 24/7.
• Want to choose exactly which cryptocurrencies you hold.
• Are comfortable managing your own custody and security.

Neither approach eliminates the risks of cryptocurrency. A fund can simplify access and custody, but its value can still fall sharply when the underlying crypto market falls.

What are the benefits of cryptocurrency funds?

Crypto funds can make it easier to add cryptocurrency exposure to an investment portfolio without dealing with all the mechanics of buying and storing crypto yourself.

• Easier access. Buy and sell many publicly traded crypto funds through a traditional brokerage account, alongside stocks and other investments.
• Simpler custody. You generally don’t need to set up a crypto wallet, manage private keys or arrange your own storage. The fund and its custodian handle the underlying assets.
• Potential diversification. Index and multi-asset funds can provide exposure to multiple cryptocurrencies through a single investment, rather than requiring you to buy each asset separately.
• Brokerage and retirement-account integration. Eligible crypto funds can be held in certain brokerage and retirement accounts, giving investors access to crypto exposure within existing investment accounts.
• Professional or rules-based management. Depending on the fund, a professional manager selects and manages the investments, or an index automatically determines which assets to hold and how to weight them.

What are the risks of crypto funds?

Crypto funds can simplify access to digital assets, but they don’t remove the risks of investing in cryptocurrency. Consider these before investing:

• Crypto volatility. A fund that tracks cryptocurrency can lose significant value when the underlying assets fall. Putting crypto in a fund doesn’t make it less volatile.
• Fees. Expense ratios, management fees and other fund expenses can reduce your returns over time. Compare fees between similar funds before investing.
• Tracking error. A fund may not perfectly match the performance of the cryptocurrency or index it tracks. Futures-based funds, in particular, can behave differently from the underlying asset’s spot price.
• Concentration. A fund that holds multiple cryptocurrencies isn’t necessarily well diversified. Some crypto indexes can be heavily weighted toward Bitcoin and Ethereum, leaving investors with substantial exposure to a small number of assets.
• Liquidity. Smaller funds or less actively traded products may have wider bid-ask spreads or be harder to trade at your preferred price.
• Structure and regulatory risk. Crypto funds can have different legal and regulatory structures. A product described as an “ETF” isn’t necessarily subject to exactly the same rules and investor protections as a traditional stock or bond ETF.
  ⁽¹⁾ Check what you actually own before investing.

How to choose a cryptocurrency fund

Don’t choose a crypto fund based solely on its name or recent performance. Two funds can both offer “crypto exposure” while having very different holdings, fees and risks. Check these factors before investing:

1. What does it actually hold? Check the fund’s holdings and whether it owns cryptocurrency, futures contracts or other crypto-related assets.
2. What cryptocurrency exposure does it provide? A Bitcoin fund, multi-asset index fund and blockchain-focused fund can have very different risk and return profiles.
3. How concentrated is it? Look at the percentage invested in each asset. A fund holding 20 cryptocurrencies may still be dominated by bitcoin and ethereum.
4. What’s the expense ratio? Compare annual fund expenses with similar products. Higher fees can eat into returns over time.
5. Does it use spot crypto or derivatives? Spot funds generally seek to track the underlying cryptocurrency, while futures-based funds can perform differently because of futures pricing and contract rollovers.
6. How liquid is it? Look at trading volume and bid-ask spreads, particularly for smaller or newer funds. Lower liquidity can make buying or selling more expensive.
7. How closely does it track its benchmark? Check whether the fund has historically tracked its underlying cryptocurrency or index closely, after accounting for fees and other costs.
8. What account can you hold it in? Check whether the fund is available through your brokerage and whether you can hold it in an IRA or other tax-advantaged account.
9. Who provides custody? For funds holding cryptocurrency, find out who safeguards the underlying assets and how custody is structured.
10. What are the tax implications? The tax treatment can vary depending on the fund structure, the account you use and what you do with your investment. Consider the potential tax consequences before buying.

How to invest in cryptocurrency funds

You can generally buy publicly traded crypto funds through a brokerage account, much like stocks or other exchange-traded investments.

1. Choose a brokerage or platform that offers the fund you want.
2. Research the fund and check its holdings, fees, structure and investment strategy.
3. Open and fund your account if you don’t already have one.
4. Search for the fund’s ticker on your brokerage platform.
5. Place your order and review the order details before submitting it.
6. Monitor your investment and keep an eye on changes to the fund’s holdings, fees and underlying crypto exposure.

ETF orders work much like stock orders: you can generally use market or limit orders, and the price you pay can differ slightly from the fund’s net asset value because ETFs trade on an exchange.

Trading volume and bid-ask spreads are worth checking, particularly for newer or less liquid crypto ETFs.

Bottom line

Cryptocurrency funds can make it easier to invest in digital assets without buying and storing cryptocurrency yourself. But the fund structure matters: check what it holds, how it tracks its benchmark, what it costs and how concentrated its holdings are before investing.

For investors who prioritize convenience and traditional brokerage access, a crypto fund may be simpler than buying crypto directly. If you want direct ownership, 24/7 access or control over your assets, buying cryptocurrency yourself may be a better fit.

Frequently asked questions

• What is the best crypto fund?

  There isn't one best crypto fund for everyone. For straightforward Bitcoin exposure, iShares Bitcoin Trust (IBIT) is one of the largest and most heavily traded options. For Ethereum exposure, iShares Ethereum Trust (ETHA) is a major option. If you want a basket of cryptocurrencies, funds such as the Hashdex Nasdaq Crypto Index US ETF (NCIQ) provide broader exposure across multiple assets.

  The best choice depends on what you want the fund to do. Compare the underlying assets, fees, liquidity, concentration and tracking performance rather than choosing solely based on size or recent returns.

• Does Vanguard have a crypto fund?

  No, Vanguard does not offer its own cryptocurrency ETF or mutual fund. Vanguard says it has no plans to launch its own crypto funds, but its brokerage platform does allow customers to trade most third-party cryptocurrency ETFs and mutual funds that meet its regulatory standards.⁽²⁾

  So, for example, you can potentially buy a third-party Bitcoin or Ethereum ETF through a Vanguard brokerage account, but the fund itself isn't a Vanguard product.

To make sure you get accurate and helpful information, this guide has been edited by Matt Miczulski as part of our fact-checking process.

Written by

Holly Jennings

Deputy Crypto Editor

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Holly Jennings is the deputy crypto editor and updates writer at Finder, working with writers across all niches to deliver quality content to readers. She’s edited hundreds of financial articles ranging from credit cards to investments. With empathy at heart, she especially enjoys content that breaks down complex financial situations into easy-to-understand information. Prior to her role at Finder, she collaborated with dozens of small businesses to maximize the reach and impact of their blog posts, website copy and other content. In her spare time, she is an award-winning author for Penguin Random House, writing about virtual reality worlds, magical girls and lasers that go pew-pew. See full bio

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Tim Falk

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Tim Falk is a freelance writer for Finder. Over the course of his 20-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio

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Tim has written 26 Finder guides across topics including:

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