What Is a Crypto ETF? Are Crypto ETFs Safe?
For all the crypto enthusiasts, this article will help you learn about the latest developments in the world of crypto. Now, what if you were told that as an investor, you could make money off crypto assets without buying a crypto wallet or tracking the daily price movements of your specific investments. Yes! You read that right. All of the above can be avoided by investing in one simple fund, and that fund is a Crypto Exchange Traded Funds (ETF).
A lot of you might be thinking that ETFs are an age-old concept because they already exist in the traditional stock markets, so how are crypto exchange-traded funds any different? In this article, we will explore all the details as to what comprises a crypto ETF, the advantages and risks associated with crypto security and what is the future of crypto ETFs. But before we discuss all this, let us learn more about what an ETF is.
What Is An ETF? What is the difference between ETF and MF?
Just as a mutual fund (MF) comprises many stocks, an ETF contains a bunch of assets such as an index (Nifty, Sensex, S&P 500, etc.) or gold. This helps investors diversify their risk and provides a healthy return over time. Moreover, mutual funds are actively managed by managers. However, the part that differentiates an ETF from a mutual fund is that the ETF is passively managed. Also, the expenses borne by investors to invest in an ETF is very low when compared to a mutual fund. Managers of an ETF do not need to rebalance the portfolio as much as a manager of a mutual fund needs to. Therefore, the expense ratio to manage a mutual fund is higher than that of an ETF.
Now that you know what an ETF is, let us add a contemporary twist to this age-old investment technique, by adding crypto assets to it as well as learning about crypto ETFs.
What Is A Crypto ETF?
By combining the two worlds of ETFs and crypto assets, we get a crypto ETF, where investors can avoid all of the complicated procedures of choosing an exchange or opening a wallet. In turn they can directly invest in a pool of funds that a crypto asset expert manages. Not only that, by buying multiple crypto coins, investors can benefit from diversification as well as a consequent reduction in risk.
Say in a few cases, investors have forgotten their passwords and have difficulties accessing their crypto wallets worth a significant amount,such crypto security issues can be easily replaced by investing in an ETF that is handy to invest in, accessible at all times, and importantly secured.
Different Types Of Crypto ETFs
Broadly, there are two types of crypto ETF funds :
- The first type of crypto ETFs are investments that are backed by a bunch of crypto assets. The fund manager managing the fund has personal ownership in those crypto coins. Managers make money and grow the fund by buying and selling a list of coins.
- The second type is a synthetic variant. It tracks crypto asset derivatives such as futures contracts and crypto exchange traded products (ETPs).
Global scenario of Crypto ETFs
Crypto assets have always been viewed as investments that are uncertain. However, in February 2021, Toronto Stock Exchange (TSX) launched the world’s first crypto ETF. Following that, there has been a launch of a series of other ETFs globally, such as Proshares Bitcoin Strategy, Grayscale Bitcoin Trust, Bitwise 10 Crypto Index Fund and more.
This brings us to an important question: since several governments have allowed for a crypto ETF, so, as an investor, can we believe that crypto ETFs are safe? Let us explore more about this briefly.
Are Crypto ETFs Safe?
For time immemorial, crypto assets have been volatile in nature. Recently, crypto assets such as Bitcoin and Ethereum, which are some of the most popular coins in the market, have fallen 50% from their 52 week high prices.
However, on the flip side, coins such as Bitcoin and Ethereum have also grown over several thousand per cent since their inception price. Crypto ETFs allow investors to take part in the crypto markets by not allowing them to spend all of their resources on one coin thus protecting investors from extreme price movements. All this effectively results in the diversification of risks.
Globally, several crypto ETFs are getting launched month on month. However, government institutions have shown regulatory concerns time and again. Crypto experts believe that the government has indicated concerns such as manipulation of coin prices on private crypto exchanges. Such concerns are valid, and, as an investor, it is important that you choose a crypto exchange that provides robust security and seamless trading experience. One such crypto exchange in India is Zebpay. To know more about crypto assets, start your journey in crypto investing by visiting Zebpay today!
I have been working as a Crypto author for the past 5 years and have gained a lot of experience in the field. I have written many articles on Cryptocurrency and have also spoken at various conferences. I am very passionate about Cryptocurrency and I believe that it holds a bright future. I am always happy to help people learn more about this exciting new technology.