Bitcoin & Crypto ETFs - Have You Considered Them in Your Portfolio?

Bitcoin and Crypto ETF products – what are they and what options are available on the market?

There are two key product categories typically referred to as “Crypto ETFs.” Category 1 are the ETFs based on tracking the price of Bitcoin, Ether, or other popular cryptos.

Category 2 are the ETFs based on stocks of companies from the crypto/blockchain domains and/or crypto-related indices. For instance, Fidelity’s Crypto Industry and Digital Payments ETF (FDIG) has no direct crypto coin holdings and is largely made up of blockchain-related stocks.

There are four primary advantages of holding crypto ETFs vs directly investing in crypto coins:

1. Crypto ETF Pro#1: Regulation - ETFs have the typical legal protections of exchange-based products, while holding crypto directly doesn’t.

2. Crypto ETF Pro#2: Hands-off approach to investing – ETFs are managed by qualified fund managers, while with crypto coins, you are on your own. This offers lower risks to novice investors, as well as time savings to experienced ones.

3. Crypto ETF Pro#3: Security – Though blockchain technology is fairly secure, with crypto wallets holding your coins, you are on your own in case of any hacks. ETFs offer better protection in that regard.

4. Crypto ETF Pro#4: Diversification – Multi-crypto ETFs and Category 2 ETFs (made up of a variety of blockchain-related stocks) represent far better diversification options than direct crypto coin ownership.

Crypto ETFs are a relatively new product class. The world’s first crypto ETF - Purpose Bitcoin ETF (BTCC.TO) - was launched on the Toronto Stock Exchange (TSX) in February 2020.

More than 1.5 years after the Purpose Bitcoin ETF launch, in October 2021, the first US crypto ETF - ProShares Bitcoin Strategy ETF (BITO) - was finally approved by the Securities & Exchange Commission (SEC). Both BTCC.TO and BITO are among the popular crypto ETF products, enjoying their first-on-the-market advantage.

Some of the popular ETFs directly based on cryptocurrencies include (Asset Under Management figures as of early January 2023 are shown in brackets):

  • Evolve Bitcoin ETF (EBIT.TO) ($50.3 million) – based on BTC
  • CI Galaxy Ethereum ETF (ETHX-B.TO) ($226.5 million) – based on ETH
  • Not an ETF, but definitely worth mentioning as the absolute leader of Bitcoin-based financial products: Grayscale Bitcoin Trust (GBTC) ($10.7 billion)

In turn, some notable ETFs based on blockchain-related stocks and indices are:

  • Bitwise Crypto Industry Innovators ETF (BITQ) ($37.5 million)
  • VanEck Digital Transformation ETF (DAPP) ($19.6 million)
  • Global X Blockchain and Bitcoin Strategy ETF (BITS) ($7.02 million)