Since the creation of Bitcoin as the first Blockchain-based Cryptocurrency, digital assets have continued to remain popular. After Bitcoin, many other cryptocurrencies like Ethereum, Dogecoin, and Litecoin have also sprung up. The global adoption of digital assets has continued to rise as many cryptocurrencies have sprung up. Many crypto analysts generally perceive these attractions to improve the overall adoption and value of the Blockchain space. Financial giants like FinTechs & Banks have continued to design bespoke products tailored to the satisfaction of crypto users. One of such products is Crypto ETFs, which became prominent in Canada, and are popular globally.
What is a Crypto ETF?
A Crypto ETF is a fund that comprises many cryptocurrencies and tracks the price of one or more digital tokens. Crypto ETFs have similarities with stocks because they trade daily and do not have a fixed price at any time. Investors can use a Crypto ETF to track the price of one digital token. And its price is dependent on the activities of investors. One of the benefits of Crypto ETFs is that they do not burden the investor with cryptocurrency ownership costs.
Unlike stocks, they primarily help the investor with trading options. In typical ETFs, share prices are determined by the movement of derivatives against the actual prices of the Cryptocurrency assets. This means that share prices rise with an increase in future contract prices. Alternatively, when future contract prices decline, share prices go low. Unfortunately, due to the added risks behind their operations, there are still issues around transparency with Crypto ETFs.
Types Of Crypto ETFs
At the moment, Crypto ETFs exist in two different forms. The first types are Crypto ETFs that are backed by cryptocurrencies. In this instance, the investment firm in charge of the funds uses them to purchase cryptocurrencies. Investors of the firm will then purchase these cryptocurrencies like shares. The investor’s advantage is that they do not have risk exposure from owning Cryptocurrency. This means that the shares they own in the investment fund represent a stake in Cryptocurrency.
In the second type of ETF, investor shares do not track cryptocurrencies but cryptocurrency derivatives. Futures contracts and Exchange Traded Products (ETPs) will be tracked by the shares bought by investors from the investment firm. Proshares Bitcoin Strategy ETF is the first U.S ETF approved by the Securities Exchange Commission (SEC) to track Bitcoin futures. Since its operation last October, it has provided investors with exposure and huge returns from Bitcoin trading without owning them.
Why Should Investors Look Towards Cryptocurrency ETFs
Despite being new digital assets, Crypto ETFs are gaining massive momentum and popularity globally. Since its inception in 2021, they have continued to attract many investors, as the digital asset class looks rewarding already. However, listed below are the benefits of Crypto ETFs;
No digital asset exposure needed
One of the benefits of Crypto ETFs is that investors do not need to hold or be exposed to cryptocurrencies. Crypto ETFs provide investors with the necessary exposure to cryptocurrencies while also ensuring rewards. These ETF providers bear the expenses of trading cryptocurrencies, like gas fees, management fees, etc. Investors in Crypto ETFs do not worry about fees associated with owning crypto wallets, as they do not need them. However, despite not being connected with the cryptocurrencies, ETFs owners are rewarded with the returns from these digital assets.
No prior knowledge of Crypto trading required
Crypto ETF investors do not have to acquaint themselves with the technicalities involved in trading cryptocurrencies. One of the significant problems facing crypto adoption globally is the tedious nature of digital assets trading. However, trading of the digital assets is done by the ETF holders, while investors speculate on price. This is one of the primary reasons why investors should choose ETFs.
Security of assets
The increased rate of hacks and scams in the Cryptocurrency space makes Crypto ETFs the right asset choice for investors. However, since the digital assets are with the ETF holders, investors have zero risk of loss. Crypto ETFs have zero losses, and investors do not have to worry about losing their investment to theft or hacks. However, ETF holders should bear the loss if this happens.
With more than 1,800 cryptocurrencies available in the trading markets, Crypto ETFs allow investors get exposure to these assets. On the other hand, regular crypto exchanges limit this exposure. Many crypto exchanges do not list all the available cryptocurrencies. As a result, investors have to continually scatter around to look for exchanges listing their preferred tokens. However, one does not have to go through such stress with crypto ETFs. Cryptocurrency ETFs enable investors to diversify without incurring the costs for each digital asset.
Where To Buy Crypto ETFs
You can buy Crypto ETFs from specific investment firms, unlike cryptocurrencies purchased via exchanges or peer-to-peer transactions. Investors can purchase Bitcoin ETFs shares like BITO via online brokerages in the U.S. An investor would have to set up a brokerage account on platforms like Etrade, Robinhood, or Fidelity. Once you have set up the account, you can buy the number of shares you want from Bitcoin Strategy ETF.
In a place like Canada, the process is typically the same. After setting up a brokerage account, investors can purchase their ETF. ETFs are available on platforms like Fidelity Advantage ETF and Purpose ETF. Globally, investment firms have continued to get a license to sell ETFs from their Financial regulators. However, with the rapid adoption of cryptocurrencies, there is a growing expectation that ETFs will continue to rise globally.
Crypto ETFs allow investors to diversify their investments without owning the assets themselves. Investors don’t associate with the risks and costs of owning the underlying Crypto ETF share but earn rewards. Crypto ETFs continue to gain prominence, and more of them will continue to spring up.
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