How to Invest in Bitcoin or Ether indirectly? Use Crypto ETF

By CryptoETFx | CryptoETFx | 27 Apr 2021


 

Many traditional investors are not ready to enter the intricacies of the cryptocurrency world. However, with a cryptocurrency ETF (crypto ETF), they will be able to diversify their portfolios and have exposure to cryptocurrencies.

Currently, four crypto ETFs are under review by the US Securities and Exchange Commission (SEC), in Canada over four new crypto ETFs started to be traded last week on the Toronto Stock Exchange (TSX), and in Brazil investors can already trade crypto ETFs. These are just a few examples where these new ETFs are in place.

 

In order to better understand why crypto ETFs are interesting, let's understand what an ETF is.

An Exchange Traded Fund (ETF) is basically a type of investment that holds a pool of securities (stocks), or commodities, or bonds, or a mix of all of them. The idea is to allow the investor to have exposure to a pool of assets without the need to buy each stock separately. Many ETFs replicate an index; for instance, the S&P500. This allows the investor to get a similar exposure to the index without buying all the 500 stocks and rebalance them in order to replicate the index.

Since an ETF aims to replicate and follow an index, the provider of the ETF will do the rebalancing automatically. Therefore, the management fees are normally very low (i.e. 0.20%) because they don't want to beat the index, just follow it; minimum work is required on their part.

As any stock, in order to buy/sell an ETF you must use a broker and many of them offer very low or even free fees for trading ETFs.

 

So what is a cryptocurrency ETF?

A crypto ETF has the same characteristics of another ETF. The difference lies on the asset it holds, in this case, cryptocurrency. Currently, the available ETFs are holding 100% of Bitcoins or 100% of Ether. Maybe in the future we will see mixes of different cryptocurrencies or other altcoins beings used as assets.

 

Why a crypto ETF would be interesting for an investor and why not just buy the cryptocurrency directly?

The crypto ETFs open an opportunity for investors to diversify their portfolios and get exposure to the cryptocurrency market. Many beginners will find it easier to buy a crypto ETF instead of managing different accounts in different exchange platforms, having a couple of wallets, worrying about scams/hackers, keeping your seed passwords safe, etc. For those that just want to get exposure to the potential profits provided by the cryptocurrencies, the crypto ETFs is a great option. You buy and sell as a normal stock and that's it. You leave the problems of security, hackers, wallets, etc. to the provider of the ETF; the latter will have to handle them.

 

In summary, I am positive we will soon see an increase in the number of new crypto ETFs around the world. Maybe some will hold a mix of stable coins, or only altcoins, and why not both.

For beginners, the main advantage of a crypto ETF over holding the asset itself is the ease of buying, selling, holding, and... paying taxes. You don't need to care about anything else. You get the same profit/loss, you pay very low management fees, and for taxes purpose, it is easier to calculate.

For traders used to the cryptocurrency market, the main disadvantages are: you can't trade 24/7, you can only have exposure to Bitcoins or Ether, you can't send funds directly to another account/trader/abroad.

For some, anonymity is fundamental, for those crypto ETF is not an option since you need to open an account with an online broker. However, for those traders who already use platforms with KYC, opening an account with an online broker is the same. Sometimes it will be easier to fund or withdraw funds from the stock broker, then from a crypto platform.

Finally, crypto ETFs were not created to replace the direct cryptocurrency market, they are just another way of investing in cryptocurrency. Moreover, this is a way to show traditional investors that cryptocurrency is here to stay and should be adopted in larger scale.

This was an introductory article about crypto ETF. I just wanted to give the reader a quick overview of this new crypto investment and assess the interest on the topic.

Thank you for reading and I hope you liked the article. :)

 

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CryptoETFx
CryptoETFx

Investor, developer and curious about blockchain, cryptocurrency, and everything related.


CryptoETFx
CryptoETFx

CryptoETFx talks about cryptocurrency investments specially via ETFs. The number of new ETFs is growing and it proves to be an interesting way for investors to diversify their portfolios and have exposure to cryptocurrency.

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