What Is A Cryptocurrency ETF? A Guide For Crypto Investors Looking To Diversify

Forbes

18-05-2025

Crypto ETFs are a good option for beginners, traditional investors and those looking for diversified ... More exposure.
A cryptocurrency exchange-traded fund (ETF) is an investment vehicle that allows investors to gain exposure to digital assets without directly holding them. Crypto ETFs can be a simpler, highly regulated way to invest in the volatile crypto world, offering diversification and ease of trading.
This guide will explain what crypto ETFs are, how they work, their advantages and the potential risks investors should consider.
A crypto ETF is a financial product that provides investors with indirect exposure to digital assets like bitcoin and ether. Instead of directly purchasing and storing these cryptos, investors can buy shares of a crypto ETF, which tracks the value of one or more digital currencies. These ETFs trade on traditional stock exchanges, making them accessible through regular brokerage accounts.
Crypto ETFs are available in two main forms: spot ETFs and futures ETFs.
Spot ETFs directly hold the underlying crypto, while futures ETFs rely on contracts that speculate on future crypto prices. This difference can impact an ETF's performance, with spot ETFs offering more direct price exposure and futures ETFs providing a way to trade on expected price movements.
Investing in crypto ETFs offers simplified access to digital assets. However, these funds are not without risks. Investors should know potential issues, including counterparty risks, management fees and limited control over the underlying digital assets. Understanding these factors can help investors make informed decisions.
A cryptocurrency ETF functions like a traditional exchange-traded fund, trading on major stock exchanges. Investors can buy and sell shares of a crypto ETF throughout the trading day, with prices fluctuating based on the value of the underlying crypto it tracks. Crypto ETFs offer real-time pricing, which provides greater flexibility for investors.
Crypto ETFs are structured to hold either the actual crypto in the case of spot ETFs or derivative contracts, as in futures ETFs, that reflect crypto prices. The fund's manager ensures the ETF maintains its target exposure by buying or selling assets as needed. This allows investors to gain exposure to digital assets without directly managing crypto wallets or navigating complex exchanges.
Crypto ETFs come in several forms, offering different ways to invest in the digital asset market. Bitcoin ETFs focus solely on bitcoin, providing direct exposure to its price. Ethereum ETFs are dedicated to tracking the value of Ethereum. Blockchain ETFs invest in companies involved in blockchain technology rather than holding crypto directly. Multi-Crypto ETFs provide access to a mix of several cryptos within a single fund.
These options allow investors to choose between a single-asset focus or a diversified approach that reduces the risk of relying on one asset.
There are two kinds of Bitcoin ETFs, spot and futures. Spot bitcoin ETFs hold actual bitcoin reserves, with each share backed by actual crypto. This means investors gain direct exposure to bitcoin's price movements without needing to manage or store bitcoin themselves. Spot ETFs are regulated financial instruments, with custodians securely storing the underlying bitcoin to protect against risks like hacking or theft.
In contrast, bitcoin futures ETFs do not hold actual bitcoin. Instead, they invest in futures contracts speculating on bitcoin's future price. These contracts are agreements to buy or sell bitcoin at a set price on a future date. While this approach offers bitcoin exposure, it introduces added complexity. Costs like roll premiums – expenses an ETF is required to pay when replacing expiring futures contracts with new ones – can reduce investor returns. Futures contracts may not perfectly track bitcoin's spot price, causing price differences between the ETF and the actual bitcoin market.
Similar to bitcoin ETFs, ether ETFs come in two main types, spot and futures-based. Spot ether ETFs hold actual ETH in a secure, regulated custody account, giving investors direct exposure to the cryptocurrency's price. When purchasing ether ETFs, investors buy shares representing a portion of the ETF's Ethereum holdings.
Futures-based ether ETFs do not hold ETH directly. Instead, they invest in futures contracts speculating on Ethereum's future price. These ETFs are easier to regulate and avoid custody risks, but may experience tracking errors and higher costs due to frequent contract rollovers.
Blockchain ETFs invest in companies using blockchain technology instead of holding cryptocurrencies directly. These funds provide exposure to industries like supply chain management, cybersecurity and digital identity. Unlike crypto ETFs, which focus on digital assets like bitcoin or ether, blockchain ETFs diversify across multiple sectors.
Examples include Robinhood, which offers crypto trading and blockchain services; Metaplanet, an investor in blockchain startups; and Cleanspark, a bitcoin mining company operating energy-efficient mining facilities. Blockchain ETFs let investors benefit from blockchain's growth without direct ownership.
Multi-Crypto ETFs expose a range of digital assets rather than focusing on a single one. These funds offer investors a balanced approach, allowing them to invest in multiple coins, such as bitcoin, ethereum, and solana, all within one investment product.
Grayscale's Digital Large Cap Fund is a notable example, holding a mix of major digital assets. Roughly 75% of the fund is allocated to bitcoin, 19% to ether, and the remainder to solana, ripple and avalanche. This approach helps spread risk and gives investors broader exposure to the evolving crypto market.
Investors are drawn to crypto ETFs because they provide a straightforward method to gain exposure to digital assets without directly owning them. Through crypto ETFs, investors can access crypto through traditional brokerage accounts, avoiding the complexities of managing digital wallets, private keys or secure storage. Crypto ETFs also offer the security of institutional-grade funds, which are managed by professional fund managers and operate under regulatory guidance.
One of crypto ETFs' most appealing aspects is their portfolio diversification. Instead of investing in a single cryptocurrency, investors can choose multi-asset ETFs that spread risk across the crypto market.
Crypto ETFs offer a convenient way to gain exposure to digital assets without directly managing cryptocurrency. However, like any investment, they come with benefits and drawbacks. Understanding these pros and cons can help investors make informed decisions.
Accessibility: Crypto ETFs can be traded through traditional brokerage accounts, making it easy for investors to gain exposure without using crypto exchanges.
Diversification: Investors can choose multi-crypto ETFs, spreading their risk across multiple digital assets instead of relying on a single cryptocurrency.
Regulatory Oversight: Crypto ETFs are managed by regulated financial institutions, providing regulated security compared to direct crypto ownership, which can be challenging.
Limited Control: Investors do not own actual crypto, meaning they cannot use it for transactions or transfer it to a private wallet.
Management Fees: Crypto ETFs often have management fees that can reduce returns over time, especially futures-based ETFs with frequent contract rollovers.
Tracking Errors: Futures-based crypto ETFs may not perfectly mirror the spot price of cryptocurrencies due to price differences between futures and actual assets.
Crypto ETFs offer investors a way to gain exposure to digital assets without direct ownership. Investors do not need to manage private keys or secure digital wallets, making ETFs a simpler option for those who want crypto exposure without the technical complexities.
In contrast, direct crypto investments allow investors to buy, hold and control actual digital assets. This approach provides complete ownership, enabling investors to transfer, spend or stake their crypto as they see fit. Direct investments also avoid management fees but come with responsibilities like wallet security, exposure to hacking risks and the need to manage transactions on crypto exchanges.
Crypto ETFs are ideal for beginner investors who want exposure to digital assets without the complexity of directly buying, storing or managing cryptocurrencies. These funds offer a simple, regulated way to invest, making them suitable for those new to the crypto market who are more comfortable with traditional financial products.
They are also well-suited for traditional investors familiar with stock markets but wanting to explore crypto. By trading on exchanges like the NYSE or Nasdaq, crypto ETFs provide a convenient option for those who prefer to avoid the security risks of crypto exchanges.
The future of cryptocurrency ETFs looks bright, with BlackRock's Bitcoin ETF posting $356 million in inflows, the longest streak of 2025, and bitcoin flirting with new highs. As regulatory clarity improves, driven by bullish sentiment from SEC Commissioner Paul Atkins, more funds are launching, providing investors with greater choice and confidence.
Bottom Line
Crypto ETFs make it easier to invest in digital assets without directly buying and managing cryptocurrencies. They are a good option for beginners, traditional investors and those looking for diversified exposure. With choices like bitcoin, ether, multi-crypto and blockchain ETFs, investors can find a fund that fits their goals while reducing some risks of direct ownership.
The future of crypto ETFs looks promising as more funds emerge and regulatory clarity improves. BlackRock's Bitcoin ETF is seeing record inflows, showing strong investor interest. As the market grows, crypto ETFs offer a straightforward way to participate in the digital asset space.
A bitcoin ETF allows investors to gain exposure to bitcoin's price without directly owning the crypto, trading like a stock on traditional exchanges. Buying bitcoin directly means purchasing and holding the actual asset, which requires managing a digital wallet and dealing with security risks.
Crypto ETFs are generally considered safer than directly holding crypto because regulated institutions manage them, offer investor protections and do not require investors to manage private keys or digital wallets. However, they still carry risks like management fees and tracking errors.
No, Vanguard does not offer a crypto ETF at this time.
Fidelity offers crypto exchange-traded products that function similarly to ETFs. These funds allow investors to gain indirect exposure to the performance of these crypto through traditional brokerage accounts.
Charles Schwab offers the Schwab Crypto Thematic ETF, which provides exposure to companies involved in the crypto and blockchain industry. This ETF does not invest directly in crypto, but instead focuses on firms that may benefit from the development or utilization of crypto and other digital assets.