Since June 2023, ETFs have been the new fashion in the crypto sector. While society is already describing them as a real revolution for the industry and its global adoption, it is more urgent than ever to learn to understand them.
What are Crypto ETFs? How do they work and how will they change the face of crypto? You will know everything in this article.
What are Crypto ETFs?
An ETF (short for “Exchange Trading Funds”) is a fund traded on an exchange and indexed to an asset or security. In the case of Bitcoin ETFs, these are funds that track the value of Bitcoin, Ethereum or other tokens on which they are based.
More specifically, at a time when some investors or beginners are reluctant to invest their money in cryptocurrencies, ETFs allow them to profit from the emergence of the latter without having to buy them directly or do crypto trading.
Investors then simply become “shareholders” of the fund, and the money they invest is reused for trading on the stock exchange. Depending on the type of ETF, they may be paid dividends or simply sell back and buy their place.
What are the benefits of Crypto ETFs?
Thanks to a hybrid operation halfway between crypto and the traditional stock exchange, Crypto ETFs bring a number of benefits to their investors.
Since the funds act as an “intermediary” with the sector, individuals who invest their money there do not need to manage their tokens or register on a crypto exchange platform. Unlike crypto trading, they don’t have to worry about trading.
ETFs are available from traditional brokers and, very generally, from trusted financial firms. Costs would also be lower.
Even better: when it comes to security, the last is the key word. Investors do not have to worry about possible theft of their tokens, and in terms of guarantees, each Crypto ETF must be authorized by local regulators. Those who are at the beginning of it are examined from all angles; unpleasant surprises are therefore minimized.
Finally, very rare ETFs can consist of several assets, limiting the risk of loss in the event of a decline in the value of one of them.
What are the disadvantages of Crypto ETFs?
Despite the many advantages of this system, there are still some disadvantages to be lamented. First the risk: despite ETFs’ middle position, they do not guarantee anything in the event of a market collapse. Some of them can also be extremely volatile.
Likewise, if only a few Crypto ETFs offer a fairly diversified basket composed of several assets, the propositions are extremely weak. For this reason, and especially since the trend has exploded, investors will tend to turn to uniquely linked funds, such as Bitcoin ETFs. They will therefore be more exposed to losses in the event of an incident.
Which Major Companies Offer Crypto ETFs?
At the time of writing this article, only about fifteen major companies have opened their Crypto ETFs:
- ETC Group;
- Coin shares;
- 21 shares;
- Wisdom Tree;
- SEBA Bank;
- Deutsche Digital Assets;
- Simplify the United States;
- Bit by bit;
- ARK funds.
In the coming months, the famous company BlackRock could join this list after the approval of its Bitcoin ETF, while Grayscale could finally embark on the adventure.
What tokens are used by Crypto ETFs?
The most popular and strongest tokens are usually the ones favored by Crypto ETFs. There are thus many funds indexed to Bitcoin or Ethereum.
However, some altcoins already benefit from their own ETFs, including Solana, Cardano, Tron, Polkadot and Litecoin. There are even Altcoin ETFs!
- Black Stone: American company specializing in asset management; it is considered the largest enterprise of its kind in the world.
- Forward contract: agreement between two parties that defines the date of investment in an asset, but also the date of its sale, in the more or less near future.
- DRY : short for the Securities and Exchange Commission, the SEC is an American regulator whose role is to create the laws of the financial markets and to enforce them.
- Stock trading: buying and selling financial products according to market movements, with the aim of making a profit.
Frequently Asked Questions (FAQ)
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