Cryptocurrency ETFs allow gaining exposure to digital assets such as bitcoin or ether without the need to buy and custody them directly. They are traded on the stock exchange through a financial intermediary, similarly to other exchange-traded products.
However, not all vehicles that the market calls “cryptocurrency ETFs” legally have the structure of a traditional exchange-traded fund. Depending on the country, they can take the form of an ETF, ETP, ETN, or trust. Therefore, in addition to knowing the asset to which they offer exposure, it is important to review the legal structure of each product.
How They Work
There are two main structures. Spot or cash products directly hold the underlying cryptocurrency in custody and seek to track its price, minus fees and other expenses. Futures-based products, on the other hand, invest in derivative contracts on the cryptocurrency. In this case, the performance may differ from the behavior of the asset due to, among other factors, the cost of rolling over the contracts.
There are also products that group several cryptocurrencies and others with leveraged or inverse exposure. The latter have more complex characteristics and are generally aimed at short-term strategies. The investor must distinguish between direct exposure to the asset, exposure through derivatives, and exposure to a combination of assets.
Why They Interest Investors
The main operational advantage is access. The investor does not need to manage private keys or directly use a cryptocurrency exchange platform. The custody of the asset, where applicable, is handled by specialized entities.
In addition, these instruments can be incorporated into a traditional portfolio and traded through existing investment accounts. For managers, advisors, and institutional investors, this makes it easier to integrate exposure to digital assets into familiar investment structures. Regulatory, tax, and operational conditions, however, depend on each market. Nevertheless, transferring custody to a specialized entity does not eliminate the risk: it delegates it. The solidity of the custodian, issuer, and product providers remains relevant.
Where They Exist
In the United States, spot products linked to bitcoin and ether are traded, in addition to futures-based vehicles. Many are legally structured as ETPs or trusts, although they are commonly referred to as ETFs.
Canada was one of the first countries to authorize spot cryptocurrency ETFs. In Europe, a large portion of the offering takes the form of ETPs or ETNs and trades on markets such as Xetra, Euronext, or SIX Swiss Exchange. They are not usually traditional UCITS ETFs, partly due to the diversification rules applicable to these funds. ETNs, moreover, can incorporate credit risk from the issuer.
In Asia-Pacific, Hong Kong and Australia have spot ETFs. In Latin America, Brazil has a broad offering of ETFs linked to different crypto assets. Chile also has a bitcoin ETF fund, while in Argentina certain foreign ETFs can be accessed locally through CEDEARs.
The specific availability for each investor depends on their country, their intermediary, and the applicable marketing regulations.
What the Investor Should Analyze
The traded format simplifies access, but it does not eliminate the volatility of the cryptocurrency it replicates. Before investing, it is advisable to review what the product replicates, whether it holds cryptocurrencies or uses derivatives, who performs the custody, what its fee is, and what liquidity it has. It is also necessary to consider the tax and regulatory treatment of each jurisdiction.
In short, a cryptocurrency ETF or ETP is, above all, an access vehicle. Its operation and its risks depend on the specific structure of the product and the market in which it is listed.
