Crypto exchange traded funds (Crypto ETFs) serve as a bridge between traditional and digital finance, these funds have witnessed exponential growth in recent years. Crypto exchange traded funds have emerged as game-changers in the crypto investment spectrum. As of November 2023, only future Crypto Exchange Traded Funds have been approved, but Spot ETFs are expected to be approved soon.
What is Crypto Exchange Traded Funds?
Crypto Exchange Traded Funds are a type of investment fund and exchange-traded product that are available on stock exchanges. They are designed to track the value of a specific cryptocurrency or a basket of cryptocurrencies. Crypto exchange traded funds make it easier to invest in cryptocurrencies due to the fact that the investor should not have a crypto wallet and should not be familiar in detail with the use of cryptocurrencies. Also, the investor is protected from theft of crypto currencies or bankruptcy of crypto exchange. Learn more about What is Bitcoin ETF?
All Crypto Exchange Traded Funds
Below is a categorized list of some prominent cryptocurrency Exchange Traded Funds focusing on either spot holdings (direct holding of cryptocurrencies) or futures (contracts that speculate on the future price of cryptocurrencies)
All Crypto Future ETF
As of November 2023, all Crypto Future ETFs that have been approved are
- ARK Next Generation Internet ETF
- ProShares Bitcoin Strategy ETF
- Bitwise Crypto Industry Innovators ETF
- VanEck Bitcoin Strategy ETF
- Valkyrie Bitcoin and Ether Strategy ETF
- Valkyrie Bitcoin Miners ETF
- Global X Blockchain & Bitcoin Strategy ETF
- Simplify US Equity PLUS GBTC ETF
- Invesco Alerian Galaxy Crypto Economy ETF
- Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF
- Hashdex Bitcoin Futures ETF
- ProShares Bitcoin & Ether Market Cap Weight Strategy ETF
- Bitwise Bitcoin Strategy Optimum Roll ETF
- ProShares Bitcoin & Ether Equal Weight Strategy ETF
- Bitwise Bitcoin and Ether Equal Weight Strategy ETF
All Crypto Spot ETF
As of November 2023, there are still no approved Crypto Spot ETFs, but here is a list of all that have applied:
- Grayscale Bitcoin Trust Conversion(GBTC)
- ARK 21Shares Bitcoin ETF (ARKB)
- iShares Bitcoin Trust
- Bitwise Bitcoin ETP Trust
- VanEck Bitcoin Trust
- Wisdomtree Bitcoin Trust (BTCW)
- Invesco Galaxy Bitcoin ETF
- Wise Origin Bitcoin Trust
- Valkyrie Bitcoin Fund (BRRR)
- Global X Bitcoin Trust
- Hashdex Bitcoin ETF Strategy Change (DEFI)
- Franklin Bitcoin ETF
History of Crypto Exchange Traded Funds
The idea of a Bitcoin ETF was proposed as early as 2013 by the Winklevoss twins, who are well-known figures in the crypto industry. They aimed to launch the Winklevoss Bitcoin Trust, but the proposal faced regulatory challenges.
In the United States, the Securities and Exchange Commission (SEC) repeatedly rejected various Bitcoin ETF proposals citing concerns over market manipulation, volatility, and the need to protect investors. Key issues included the lack of surveillance-sharing agreements with significant, regulated, markets of size related to Bitcoin, and the SEC’s views on the difficulty of price discovery in the Bitcoin market.
While the U.S. was slow to approve crypto exchange traded funds due to regulatory concerns, other countries moved forward. Canada became a leader in this space. In April 2021, Canada approved the first North American Bitcoin ETF — the Purpose Bitcoin ETF (BTCC). It was followed by other products, including Ethereum ETFs.
The U.S. finally saw its first Bitcoin-related ETF with the launch of the ProShares Bitcoin Strategy ETF (BITO) in October 2021, which does not invest directly in Bitcoin but rather in futures contracts on Bitcoin. Following BITO, several other futures-based Bitcoin ETFs were approved, such as the Valkyrie Bitcoin Strategy ETF (BTF) and the VanEck Bitcoin Strategy ETF (XBTF).
A key distinction in the U.S. has been between spot and futures-based ETFs. As of November 2023, the SEC had not approved any Crypto Spot ETFs in the U.S. that directly hold Bitcoin (spot ETFs), whereas several futures-based crypto exchange traded funds were available.
Mechanics of Crypto Exchange Traded Funds
Crypto Crypto Exchange Traded Funds are created by ETF providers or fund managers who decide the ETF’s investment objective and underlying assets (cryptocurrencies or crypto derivatives like futures).
In the case of spot crypto ETFs, the fund manager must secure the storage and safety of the actual cryptocurrency holdings, often using digital wallets and cold storage solutions. For futures-based ETFs, the manager deals with futures contracts, which are financial derivatives and don’t require managing actual cryptocurrencies.
The ETF provider then creates shares representing the fund’s holdings. These shares are sold to investors, allowing them to gain exposure to the price movements of the underlying cryptocurrencies without directly owning them.
Crypto Exchange Traded Funds shares are listed and traded on traditional stock exchanges, much like shares of a regular stock or a traditional ETF.
The price of a crypto ETF share is determined by the market and should theoretically reflect the net asset value (NAV) of the underlying crypto assets. However, supply and demand dynamics on the stock exchange can lead to price discrepancies.
Authorized Participants and market makers play a crucial role in providing liquidity and keeping the ETF share price in line with its NAV. They can create or redeem ETF shares in response to market demand, often profiting from and correcting price discrepancies between the crypto exchange traded funds and the underlying assets.
Benefits of Investing
- Crypto Exchange Traded Funds like the “Digital Large Cap Fund” offer exposure to Bitcoin, Ethereum, and other leading cryptocurrencies.
- In 2022, the aggregate trading volume for top-tier Crypto Exchange Traded Funds regularly surpassed the $1 billion mark daily.
- Case studies have shown that Crypto Exchange Traded Funds investors experienced lesser portfolio volatility compared to direct crypto traders in 2021.
- A survey from 2022 revealed that 60% of Crypto Exchange Traded Funds investors preferred them due to their ease of use and familiarity.
Risks and Challenges While Crypto Exchange
Traded Funds present a lucrative investment avenue, the crypto sphere is inherently volatile. For instance, May 2021 saw a drastic 30% drop in Bitcoin’s value in just a day. Additionally, regulatory uncertainties in major markets like the US and India have posed challenges for Crypto ETF launches.
Regulations and and Crypto exchange Traded Funds in 2023
The U.S. Securities and Exchange Commission (SEC) accepted applications to create spot Bitcoin exchange-traded funds from six firms, including BlackRock, on July 19, 2023​​.
Prior to September 5, 2023, a three-judge panel from the District of Columbia Court of Appeals found that the SEC erred in denying Grayscale’s proposed Bitcoin ETF without elucidating its rationale. This verdict mandated the SEC to re-evaluate Grayscale’s application, albeit with an option for the SEC to appeal the decision​​.
Post-verdict, on September 5, 2023, Grayscale urged the SEC for a swift approval of its proposed Bitcoin ETF​​.
The SEC postponed the decision on all spot Bitcoin ETF applications filed by various applicants until October 2023​​.
The favorable court ruling for Grayscale momentarily elevated Bitcoin’s price by nearly 7%​​.
On October 20, 2023, JPMorgan projected a likely approval of multiple spot Bitcoin ETFs in the forthcoming months, reflecting a positive outlook on the evolving regulatory milieu​​.
Future Prospects
A study by “Global Finance Insights” predicts that by 2030, Crypto ETFs could constitute 10% of the global ETF market, emphasizing their potential. The global ETF market is more than 10,000 billion U.S. dollars. However, market dynamics, regulatory shifts, and technological advancements will dictate their trajectory.
Conclusion Crypto Exchange Traded Funds are undeniably shaping the future of digital currency investments. As they continue to gain traction, their role in democratizing access to the crypto world becomes even more paramount.
I am a crypto journalist and blockchain expert. I like technology and started reading about bitcoin in 2013. Crypto is my passion and I like to write about cryptocurrencies.
P.S.
When I wrote the article “Crypto Exchange Traded Funds” I analyzed statistics from various reliable sources. Always verified information from the Genesis code.
