Cryptocurrency ETFs could be one of the most popular trends in the financial markets in the coming years. It could be possible for companies and firms to start investing in digital assets without having to own them or worry about how to hold them.
The goal of this post is to share with you all the information you should have about cryptocurrency ETFs. Although they are very common in financial markets, there is still a lack of ETFs for digital assets around the world. Could this just be the beginning for cryptocurrency ETFs?
Disclaimer: the information shared by AltSignals and its writers should not be considered financial advice. This is for educational purposes only. We are not responsible for any investment decision you make after reading this post. Never invest more than what you are able to lose. Always contact your professional. financial advisor.
What is an ETF?
An exchange traed fund is an asset that investors can purchase if they want to get exposure to a specific industry, stocks, commodities or currencies. An ETF tracks the performance of an underlying asset or several other assets and it can be traded in the same way as other stocks.
An ETF could track, for example, the price of technological companies in the United States. It could also track the banking sector in another country. In order to do so, the ETF has a set of stocks that help the investor have some exposure to these specific industries.
The price of ETFs is determined by the supply and demand. While they look similar to mutual funds, they are different because they are more liquid, they have been properly structured and they have lower fees. In addition to it, most of the ETFs have large liquidity, making them very efficien tools for those that want to purchase them.
What is a Cryptocurrency ETF?
A cryptocurrency ETF is a traditional ETF that tracks the performance of virtual currencies such as Bitcoin (BTC), Ethereum (ETH) or Litecoin (LTC). They could track the price of just one digital asset or several of them.
ETFs could be a good way for traditional investors to get exposure to the virtual currency market. Some large investors do not enter the crypto market due to the fact that it becomes very difficult for them to protect their assets and be the custodian of their virtual currencies.
At the same time, there are limited institutional tools available right now in some countries for large investors to get access to digital assets. The cryptocurrency market has expanded over the last few years and investors would definitely want to get exposure to it. Nevertheless, the investment tools available right now are yet not enough to meet the demand there is.
How to invest in a Cryptocurrency ETF?
ETFs are usually traded in a similar way as stocks. Thus, if you are a large investor, you can easily get access to an ETF through your broker or financial institution with access to the market. However, considering that there are no cryptocurrency ETFs in the United States right now, you might have to try purchasing cryptocurrency ETFs in other markets.
Some of the countries that are now offering cryptocurrency ETF include Germany, Jersey, Liechtenstein and Switzerland. These countries include different digital assets and returns for investors.
In the United States they have not yet been approved by the United States Securities and Exchange Commission (SEC), the regulatory agency in the country. The financial market is one of the most developed in the world but it certainly requires permissions and companies to be compliant with all the regulations available. In the future, however, we could see the expansion of ETFs in the country.
Advantages and Disadvantages of Cryptocurrency ETFs
There are some advantages and disadvantages of ETFs. If you are considering investing in crypto ETFs you should know these pros and cons.
Pros
- They track the price of digital currencies
- ETFs are usually very liquid
- Investors do not have to be worried about holding the digital assets
- The fees are sometimes lower than purchasing virtual currencies
- ETFs offer diversification to traders
- Several countries have crypto ETFs available
- Most of the largest digital assets should be available
Cons
- Some ETFs are not as diversified as you might need
- If they include just a digital asset, it might be more expensive than handling a stock
- They are not available in the United States
- Not all the virtual currencies are available to investors
