Investing in Cryptocurrency Via ETFs and ETNs- Newshuntz

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Investing in cryptocurrencies has become more popular for several years. To the point that there now exist what we call crypto ETFs: Exchange Traded Funds (ETFs) dedicated to the world of cryptocurrencies.

In this article, we are going to talk about those funds that leave no one indifferent. On the investor side, some are very supportive, while others are fiercely opposed. Also on the authorities’ side, there would be good and bad ETFs (just as there are good and bad hunters).

I will try to summarize all of this, starting by differentiating “real” crypto ETFs from the rest. Then we will see how to invest for those who wish to take action.

Crypto ETF: A Turbulent History

What is a crypto ETF?

First point of attention, until recently, the expression “crypto ETF” was often overused. It wasn’t always an ETF. Moreover, you can consult our article presenting ETFs in detail before returning to this article. Notably, in Europe, funds must comply with the UCITS directive, which notably implies being diversified and relying on regulated assets, which is not the case for cryptocurrencies.

Thus, crypto ETFs, before 2024, were rather trackers composed of financial securities of companies linked to cryptocurrency (e.g. mining, blockchain, or even companies that have cryptocurrencies on their balance sheet). This is for example the case of Melanion Bitcoin Equities UCITS ETF, or the VanEck Blockchain and Crypto Innovators UCITS ETF.

To be closer to an asset backed directly by cryptocurrencies, you will instead have to turn to ETNs: Exchange Traded Notes. In this case, the management company exchanges a debt tool with the investor, and on the other hand, it invests in crypto assets.

A brief history of 100% crypto funds

When Bitcoin and cryptocurrencies began to emerge, a few institutional investors wanted to acquire them. However, many have been reluctant to go through a cryptocurrency exchange platform, and are even less likely to keep them.

This is when a Bitcoin Contract For Difference (CFD) emerged on the Chicago Stock Exchange, allowing certain investors to add BTC to their portfolio without having any directly. And some issuers wanted to go further, by offering an ETF.

Nevertheless, the Securities and Exchange Commission (SEC), the American financial regulator, and issuers fought a battle for several years.

A first authorization from the SEC in the United States…

The battle between issuers and the SEC began during the 2020-2021 bull run. Given the growth in the number of investors, the demand for crypto ETFs has become significant. But the SEC was initially very reluctant, before finally giving in at the end of 2021.

Since then, several ETFs have been officially authorized by the SEC, but only those with Bitcoin CFDs or Ethereum CFDs as underlying assets. For the spot market, it’s a different story.

but only since January 2024 for “Bitcoin Spot ETFs”

In January 2024, the SEC finally accepted the marketing of the first Bitcoin Spot (or “spot”) ETFs. If the subject has made more and more noise in 2023, it is because asset management giants, like BlackRock (several trillions of dollars under management), have entered the race.

The SEC has long talked about the risks of price manipulation, an argument that has not held water forever. Indeed, if the spot market is manipulated, the CFD would also be, since it is itself based on the spot market.

While the wait for SEC approval led to a rise in the price of Bitcoin, its price did not explode after the positive announcement from the American regulator. The same was true for “The Merge” of Ethereum in September 2022. This shows that the stock market adage “Buy the rumor, sell the news” is often true.

Different types of ETFs have emerged

There are 3 types of ETFs in cryptos:

  • Those based on Bitcoin (BTC),
  • Those based on other cryptos,
  • And those who rely on companies linked to cryptocurrency

Bitcoin ETFs are the best known, and those that have attracted the most attention, particularly because Bitcoin alone represents around half of the capitalization of the crypto market. As already said, in the summer of 2023, the asset management giant, BlackRock, caused a lot of ink to flow by talking about the launch of a Bitcoin ETF.

However, there are also ETFs based on Ethereum, but also the cryptocurrency Ripple (XRP) Cardano (ADA), Polkadot (DOT), or even on baskets of several cryptocurrencies. For example the top 5 cryptos by capitalization, or the top 10.

The advantages of investing in a cryptocurrency ETF

Several reasons may lead you to consider investing in cryptocurrency through ETFs or ETNs rather than investing directly.

Accessible from your title account

The first advantage, especially if you want to limit the number of investment platforms you use, you can buy crypto ETFs via a securities account.

Indeed, since ETFs are traded on stock exchanges such as Euronext, you can use a securities account which can also be used to buy shares or bonds, for example.

On the other hand, not all securities accounts give you access to crypto ETFs. I will list some of them in the rest of the article.

A more stable regulatory framework

Another advantage of crypto ETFs is that you invest through players and tools supervised by regulators.

Certainly, crypto platforms can be registered as a Digital Asset Service Provider (PSAN) with the Financial Markets Authority (AMF), but not all are, and this status which has existed since 2019 is still evolving, being relatively recent.

A diversified asset

As I already mentioned above, using an ETF allows you, by purchasing a single financial asset, to benefit from a diversified portfolio.

An ETF like MSCI World allows you, for example, with a single purchase to gain exposure to more than 1,500 shares of the largest companies around the world. If today no tracker is exposing you to thousands of cryptocurrencies at once, a crypto ETF can still allow you in just one trade to be exposed to a basket of 5 or 10 cryptocurrencies per example.

Read also: What is An IDO Initial DEX Offering in Crypto?

Kraken Reviews and User Guide for Investing in Crypto

What is The Best Platform for Investing in Cryptocurrency?

Cryptocurrency Trading Strategies You Need To Know?

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