What Are Cryptocurrency ETFs?

Last Updated on January 28, 2022 by Arty Fisher

In this article, we’ll look at how cryptocurrency ETFs work and what factors have allowed them to reach the market today. We’ll also examine some of their potential disadvantages as well as their potential advantages.

If you’re a cryptocurrency enthusiast, chances are you’re at least somewhat familiar with ETFs. The huge exchange-traded funds designed to track the stock market have been around for more than 40 years, and they’ve become a popular way for investors to participate in the markets.

Easy to purchase and sell, ETFs trade on an exchange like stocks and can be bought and sold throughout the day. Like mutual funds, they offer instant diversification, meaning that someone buying an ETF can buy into a number of different stocks with just one purchase. That’s especially useful if you’re looking to build a portfolio but don’t have much money to spend on individual stocks.

But if you’re considering buying into the cryptocurrency market through an ETF, you might want to learn about some of its limitations before you jump in with both feet. Although there are several cryptocurrency-related ETFs available for purchase today, investors should keep in mind that these are still extremely new products that haven’t proven themselves in the market yet.

Types of Crypto ETFs

Cryptocurrency ETFs could come in two forms:

  • One that tracks a basket of cryptocurrencies
    This will provide similar diversification benefits as a traditional ETF
  • One that tracks a single cryptocurrency
    This will provide direct exposure to the price of a cryptocurrency.

Digging Deeper into Crypto ETFs

Cryptocurrency ETFs operate like regular ETFs. The ETF buys cryptocurrencies from exchanges and divides them among investors.

CryptoETF’s must be traded on a secondary market, so you can’t just buy one directly from the company. At first, there were no ways to invest in cryptocurrency ETFs because there weren’t any listed on major exchanges. Now, you can trade Grayscale Bitcoin Trust, GBTC (which tracks bitcoin) on the stock market.

The main issue with GBTC is that it doesn’t offer exposure to altcoins (cryptocurrencies other than bitcoin). It also has high fees and isn’t very liquid. Finally, since it trades over-the-counter (OTC) instead of on an established exchange, it’s difficult to get accurate pricing information or buy/sell orders.

Are there any downsides?

One of the biggest issues is the lack of liquidity in these markets. If you want to buy or sell a large amount of any given cryptocurrency, you can have a hard time doing so without moving the market against you.

It’s also difficult to buy and sell many of these cryptocurrencies for regular money (like USD). This makes it hard for people to participate in certain types of transactions. For example, you can’t make payroll if your employees only accept payment in Bitcoin or other cryptocurrencies.

There are also concerns about fraud and theft with cryptocurrencies, especially since exchanges have been hacked in the past. Additionally, there is no insurance on cryptocurrency assets, making them more susceptible to theft than regular investments like stocks and bonds.


As with most investments, there’s always some risk in trading, especially when you don’t know exactly what you’re doing. While learning about the cryptocurrency ETF market can be interesting and even fun to learn about, make sure you know what you’re getting yourself into before putting any money on the line.

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