• Home
  • /
  • Blog
  • /
  • What Are Crypto ETFs & How They Work?

What Are Crypto ETFs & How They Work?

Bitcoin ETFs
Some of the links in this post are from our sponsors. We provide you with accurate, reliable information. Read our Advertising Disclosure.

ETFs, or exchange-traded funds, come in various forms, like tech ETFs, S&P 500 ETFs, and crypto ETFs. Bitcoin ETFs are relatively new to the investment world compared to other ETFs. 

So what are they, and how do they work?

Crypto ETFs are made up of cryptocurrencies like Bitcoin, Litecoin, or Dogecoin. The ETF tracks the value of the crypto within the fund, and the value per share mirrors that of the crypto. Investors can buy shares of the ETF and trade without having to buy actual cryptocurrency.

This article will explain in depth what Bitcoin ETFs are and how they work. We’ll also introduce a few books and videos you can use to learn more about crypto ETFs and how to successfully analyze and trade them.

Why I like eToro:

eToro allows you to trade popular cryptocurrencies. Explore professionally managed portfolios. Connect with over 20M traders

>> Read our full review

Minimum Deposit: $200 (only $50 for U.S.)

Trading Fees: Low fees (depends on the trade)

Promotion: No current promos

Bitcoin ETFs Explained

An ETF is a group of securities that trade on an exchange, just like stocks. The value of the ETF is based on the securities it tracks, and the value fluctuates as the securities are traded.

A crypto ETF is an ETF that is made up of cryptocurrency. The price of a crypto ETF depends on the prices of the cryptocurrencies within the fund. While it will not exactly mirror the trading prices of the currency, it will be very similar to the current trading prices of the crypto itself. 

The brokerage that manages the crypto ETF decides which cryptocurrencies will be in it. They look at future predictions, diversification, and what they as experienced investors will provide the best returns. 

Cryptocurrency is a relatively new type of investment, and so are crypto ETFs. If you are in the United States, there is currently only one crypto ETF that you can trade.

It is called the ProShares Bitcoin Strategy ETF, or BITO, and here is how they define the ETF:  ProShares Bitcoin Strategy ETF (BITO) is the first U.S. bitcoin-linked ETF offering investors an opportunity to gain exposure to bitcoin returns in a convenient, liquid, and transparent way.

The Fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.

Buying shares of the fund is different from investing in Bitcoin itself. The ETF is an investment in Bitcoin futures, so the ETF price will almost always be different from the current Bitcoin price

How Crypto ETFs Work

Crypto ETFs work the same way as any other ETF. They trade on an exchange when the market is open. Prices change depending on the demand for the ETF and the pace at which they are being traded.

Trading crypto ETFs has many benefits compared to trading single cryptocurrency shares.  First, owning a share of a crypto ETF is much cheaper relative to owning the actual cryptocurrency.

Many different cryptocurrencies trade today, and some of them have a value of tens of thousands of dollars for one unit. However, with crypto ETFs, you can own just part of different cryptocurrencies without having to spend so much to buy them. 

Another benefit of crypto ETFs is that they are a more diverse investment than just owning shares of single crypto. With a crypto ETF, you own partial shares of multiple currencies instead of just one like you would if you bought the currency itself.

That way, if a single crypto loses its value, you do not lose your whole investment. You have other currencies in your ETF to offset the loss.  Furthermore, crypto ETFs have low fees compared to trading cryptocurrencies themselves. When you own crypto, you need to have a digital wallet to store it.

You also need to pay fees to the brokerage or manager that you use to trade your cryptocurrency. These brokerage fees are higher than what you pay to a brokerage for managing your ETFs.

Finally, cryptocurrency can be a confusing or difficult investment for someone unfamiliar with the sector. There are a lot of terms, analyses, and trading techniques to understand to trade crypto.

With crypto ETFs, you can bypass a lot of the knowledge since you have someone managing your fund for you.  The next section has some great resources that you can use to learn more about cryptocurrency

Quick Recap

Bitcoin ETFs are a great investment, and they have many benefits compared to investing directly in cryptocurrencies, including lower fees and higher diversification.

If you want to trade crypto ETFs in the United States, you currently only have one option: the BITO.  They are relatively new security, but there are many resources to learn more about how they work and how to trade them.

As they grow in popularity and become more available to trade, you will be able to trade them and have a strategy to do so in a fast and efficient way. 

Invest $1K in Crypto. Get $50.

Did you know BTC beat the 2020 returns of gold and the S&P 500? And there’s a slew of altcoins making similarly exciting moves in the market. You can find them on eToro, the world’s leading social trading platform. For a limited time, if you make $1K in trades, eToro will give $50! So, get into the crypto game and start investing on eToro today.

eToro

eToro is a social trading and multi asset brokerage company that focuses on providing copy trading services that has registered offices in Cyprus, Israel and the United Kingdom.

etoro icon

You may also like

6 Steps to Get Out of a Timeshare

6 Steps to Get Out of a Timeshare

Should You Invest in Terra Coin?

Should You Invest in Terra Coin?