A comprehensive guide to crypto ETFs A comprehensive guide to crypto ETFs A comprehensive guide to crypto ETFs

A comprehensive guide to crypto ETFs


Saxo Group

What is a crypto ETF? 

Crypto ETFs, or cryptocurrency exchange-traded funds, represent an innovative blend of traditional ETF structures and the burgeoning world of digital currencies. Unlike conventional ETFs that track indices, commodities, or baskets of assets, crypto ETFs focus on cryptocurrencies.

These ETFs, like bitcoin ETFs, provide a direct exposure to a specific cryptocurrency's market price, also known as their spot price. Bitcoin ETFs are akin to buying bitcoin itself, but without the complexities or concerns of managing a digital wallet.

How do crypto ETFs work?

Crypto ETFs operate by tracking the price of cryptocurrencies. For instance, a bitcoin ETF would reflect the price movements of bitcoin. Much like traditional stocks, crypto ETFs are traded on stock exchanges. This familiarity makes them particularly appealing to investors who are accustomed to the stock market but are seeking entry into the crypto space without the direct complexities of digital currency transactions. 

In the world of cryptocurrency, it's common to see significant fluctuations in prices, a situation referred to as volatility. This aspect is not entirely new to exchange-traded funds (ETFs), but it's more pronounced in this context. As a result, ETFs might sometimes trade at a higher or lower value compared to the actual market price of the assets they represent. This difference leads to a variation in the ETF's price in comparison to its underlying asset value. 

Global market impact of crypto ETFs 

With the SEC's approval of spot bitcoin ETFs in early 2024, the global market has witnessed a significant shift. This move not only endorses the legitimacy of cryptocurrencies, but also opens avenues for international markets to explore similar financial products. This should appeal to investors who often diversify their portfolios across global markets, as they now can include regulated crypto assets, potentially enhancing global market stability and investor confidence in cryptocurrencies. 

Benefits of investing in crypto ETFs 

Ease of access and diversification: Investing in crypto ETFs simplifies entry into the crypto market. They allow investors to leverage the growth potential of cryptocurrencies while diversifying their portfolios. 

Reduced complexities: Investing in crypto ETFs presents a streamlined solution for navigating the perceivably complex world of cryptocurrency investments. By choosing crypto ETFs, you bypass the intricate and sometimes daunting aspects of direct crypto dealings, such as setting up and managing digital wallets, understanding blockchain technology intricacies, and addressing security concerns. These ETFs encapsulate the dynamic nature of cryptocurrencies within a familiar, regulated, and more accessible framework of traditional trading. 

Regulatory oversight and security: Crypto ETFs operate within regulated financial systems, offering a level of security and compliance not always present in direct cryptocurrency investments. This regulated environment can provide a sense of security for investors, particularly those cautious about the relatively unregulated nature of direct cryptocurrency trading. 

Risks associated with crypto ETFs

Volatility and tracking errors: While crypto ETFs offer a regulated route into cryptocurrency investment, they still carry inherent risks. The primary risk is the volatility of cryptocurrencies themselves. Additionally, tracking errors between the ETF’s performance and the actual cryptocurrency market can occur, leading to potential disparities in expected vs. actual investment returns.

Regulatory risks: The regulatory environment for cryptocurrencies is still evolving and can vary significantly across different jurisdictions. Changes in regulations or legal status of cryptocurrencies can impact crypto ETFs, possibly leading to market uncertainty or restrictions in trading these ETFs.

Liquidity risks and market sentiment: While crypto ETFs generally offer better liquidity compared to direct cryptocurrency investments, they can still be subject to liquidity risks. Market sentiment towards cryptocurrencies can rapidly change, influencing the trading volume and liquidity of these ETFs. In extreme cases, this could affect the ability to buy or sell the ETFs at desired prices.

How to invest in crypto ETFs 

Investing in crypto ETFs has opened new doors for both seasoned and novice investors. These ETFs are particularly appealing to those seeking exposure to the dynamic world of cryptocurrencies without directly engaging in the complexities of digital currency management. 

Before pursuing these products, it is important to be aware of your local market regulations and whether you are permitted to invest in them. Eligibility to invest in these products varies by region. For example, there are certain restrictions in the EU that primarily allow only professional investors to participate, while a broader audience can access them in other regions. 

In some markets, it is not possible to trade cryptocurrencies at all. In these markets, a way to gain some exposure to cryptocurrencies is through ETFs that track related sectors, such as blockchain. 

To invest in crypto ETFs, you can select from various ETFs and ETNs that track the performance of cryptocurrencies. These can be purchased through regular brokerage accounts, just like other stocks or ETFs. Major players like BlackRock and ARK have introduced products that blend the exciting prospects of cryptocurrencies with the familiar structure of ETFs. 

To help clients navigate this new space, Saxo created an investment theme based on spot bitcoin ETFs. Saxo’s investment themes are curated by our in-house analysts and are built on selected instruments that they believe offer different forms of exposure within investment topics and sectors. For professional investors in Europe, and eligible investors outside the EU, these low-expense ratio bitcoin ETFs offer an opportunity to diversify and enhance portfolios. However, the inherent volatility of cryptocurrencies necessitates a strategic and informed approach to investment. 

As the crypto investment landscape continues to evolve, staying informed and agile is key to harnessing the potential of these transformative investment vehicles. Saxo's platform features up to date research and news insights to help clients stay abreast of these developments. Investors are encouraged to leverage these resources to make the most of these innovative financial products. 

In conclusion, crypto ETFs present a novel and promising avenue for investors looking to navigate the cryptocurrency market. While they offer the benefits of diversification, regulatory oversight, and ease of access, it is imperative for investors to be aware of the risks associated with cryptocurrency volatility and market sentiment. As with any investment, a balanced and informed approach is key to leveraging the potential of crypto ETFs. 

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