7 Best Cryptocurrency ETFs to Buy

Cryptocurrencies have rallied strongly in 2023, bucking calls for a “crypto winter,” or a prolonged period of losses. After numerous stablecoins and exchanges collapsed in 2022, crypto is once again surging, with the price of Bitcoin (BTC) and Ethereum (ETC) up about 56% and 51%, respectively, this year through June 5.

© (Getty Images)
Crypto Whale Bitcoin Cryptocurrency Large Investor Holding Coin Asset, Stock Market, Investing, technology, block chain

However, the bars to entry for prospective crypto investors are still higher than for buying stocks. Investors should determine which crypto exchanges are trustworthy and financially stable, understand the intricacies of self-custody, and have enough technical know-how to transfer cryptocurrencies between various forms of storage.

Load Error

For a drastically easier alternative, you can instead opt for crypto exchange-traded funds, or ETFs. “Crypto ETFs are essentially funds that track the price of a select individual cryptocurrency or even a group of cryptocurrencies,” says Brandon Zemp, CEO of BlockHash LLC. “They are traded in the same way a common stock is traded on exchanges.”

By buying shares of a crypto ETF, you can gain exposure to the price movements of the underlying cryptocurrency. Usually, this includes Bitcoin, but it can also comprise Ethereum or even the stocks of crypto exchanges and miners.

“Crypto ETFs can be beneficial in a number of ways,” Zemp says. “They are generally low-cost, more diversified and require no real need to understand how crypto self-custody works, making them a simpler way of gaining exposure to the crypto market.”

However, it’s important to understand that in exchange for this simplicity, you must accept some drawbacks. “The main disadvantage is that you don’t physically own any of the underlying cryptocurrency in the ETF,” Zemp says. “So, you can’t take advantage of decentralized finance, leverage or use the crypto for payment of goods and services.”

Finally, you need to be aware of other legal limitations with crypto. Currently, U.S.-listed crypto ETFs cannot offer spot exposure, meaning that they are barred from holding actual crypto in their portfolio. Instead, these ETFs must make use of crypto futures contracts or hold stocks of crypto companies.

At the heart of this restriction is an ongoing lawsuit by Grayscale Investment against the U.S. Securities and Exchange Commission after the regulator rejected Grayscale’s proposal to convert the close-ended Grayscale Bitcoin Trust (ticker: GBTC) into an open-ended ETF.

“Grayscale alleges that the SEC is taking like cases and treating them differently, and that they acted arbitrarily in rejecting applications for spot Bitcoin ETFs after previously approving bitcoin futures ETFs,” says Ron S. Geffner, partner at Sadis & Goldberg LLP. “The SEC’s defense is that Grayscale failed to meet standards aimed at preventing fraudulent practices and protecting investors.”

Until this lawsuit is settled and the SEC issues further regulations when it comes to cryptocurrency ETFs, the legality of a true spot crypto ETF remains in limbo. “The crypto community appears to be losing its momentum given the SEC’s conviction that most digital currencies are securities and subject to the full panoply of federal securities laws,” Geffner says.

In the meantime, you can buy these seven crypto ETFs for exposure instead:

ETF Expense ratio
ProShares Bitcoin Strategy ETF (BITO) 0.95%
VanEck Bitcoin Strategy ETF (XBTF) 0.76%
Valkyrie Bitcoin Strategy ETF (BTF) 0.95%
Bitwise Crypto Industry Innovators ETF (BITQ) 0.85%
Global X Blockchain & Bitcoin Strategy ETF (BITS) 0.65%
Purpose Bitcoin ETF (BTCC.U) 1.49%
CI Galaxy Ethereum ETF (ETHXF) 0.81%

ProShares Bitcoin Strategy ETF (BITO)

BITO offers exposure to Bitcoin via a portfolio of Bitcoin futures contracts. These derivatives represent agreements to buy or sell Bitcoin at a future date. As the price of Bitcoin fluctuates, so will the price of futures contracts tracking it. Thus, by holding Bitcoin futures, BITO achieves exposure to Bitcoin prices, albeit not in a perfectly accurate manner.

This is because the price of Bitcoin futures can, on occasion, differ from the spot price of Bitcoin thanks to variables like supply and demand and inefficiencies with derivatives pricing. Historically, BITO has been strongly correlated with the price of Bitcoin and tracked it closely, but there is no guarantee of this accuracy. BITO charges a 0.95% expense ratio.

VanEck Bitcoin Strategy ETF (XBTF)

An actively managed alternative to BITO is XBTF, which also makes use of Bitcoin futures contracts. Specifically, XBTF invests in a portfolio of monthly dated CME Bitcoin futures for which it primarily holds an assortment of U.S. Treasury bills as collateral. For cost-conscious investors, XBTF may be a better pick than BITO due to its lower expense ratio of 0.76%.

Another benefit of XBTF is the availability of an options chain, which can offer you the ability to leverage or hedge your investment by buying call or put options, respectively, or generate income by selling the aforementioned options. However, be aware that this ETF has only accrued about $40 million in assets under management, or AUM, putting it at the smaller end of fund sizes.

Valkyrie Bitcoin Strategy ETF (BTF)

BTF is an actively managed, Nasdaq-listed ETF that also offers exposure to Bitcoin futures contracts. Since its inception on Oct. 21, 2021, the ETF has accrued around $28 million in AUM. As with XBTF, BTF’s portfolio is held mostly in U.S. Treasury bills as collateral for CME Bitcoin futures.

BTF’s exposure is designed so that the notional value of all of its Bitcoin futures equals 100% of the net assets of the fund. That is, the ETF does not attempt to over- or under-leverage itself to target greater returns or decrease risk. Keep in mind that like BITO and XBTF, BTF does not invest directly in Bitcoin, so its price can differ from the spot price of Bitcoin. The fund charges a 0.95% expense ratio.

Bitwise Crypto Industry Innovators ETF (BITQ)

BITQ departs from the previous ETFs on this list by tracking crypto industry stocks instead of Bitcoin futures. By buying BITQ, you are instead making a bet on the future growth of the overall crypto economy instead of just Bitcoin prices. This approach may be correlated to Bitcoin given the reserves often held by these companies, but it also depends on a company’s individual performance.

This fund has accumulated just over $75 million in AUM, which is spread out among 27 holdings. Notable names in its portfolio include Galaxy Digital Holdings Ltd. (GLXY), Microstrategy Inc. (MSTR), Marathon Digital Holdings Inc. (MARA), Bitfarms Ltd. (BITF) and Riot Platforms Inc. (RIOT). BITQ charges a 0.85% expense ratio.

Global X Blockchain & Bitcoin Strategy ETF (BITS)

For a hybrid play, you can buy BITS, which combines Bitcoin futures with a portfolio of crypto industry stocks. Currently, about 55% of the ETF is held in the Global X Blockchain ETF (BKCH), which comprises 25 crypto companies that specialize in mining, exchanges, hardware manufacturing and software development tracked by the Solactive Blockchain Index.

The other 45% of BITS is held in monthly CME Bitcoin futures, just like the ones used in BITO, XBTF and BTF. Investors who buy BITS therefore receive the risks and returns of not only Bitcoin futures, but also get exposure to the performance of cryptocurrency stocks. This approach can provide a greater degree of diversification. The ETF charges a 0.65% expense ratio.

Purpose Bitcoin ETF (BTCC.U)

Thanks to more permissive regulatory frameworks, the Canadian ETF industry got a head start against its U.S. counterpart with the launch of the BTCC.U, the world’s first physically backed, spot Bitcoin ETF. This ETF holds actual Bitcoin in cold storage with a custodian. Each share of BTCC.U corresponds to a small fraction of a Bitcoin.

Despite being listed on the Toronto Stock Exchange, or TSX, BTCC.U may be available to U.S. investors who are able to buy international ETFs with their brokerage. The “.U” suffix in BTCC.U denotes that this ETF is denominated and traded in U.S. dollars. This allows U.S. investors to buy and sell the ETF without incurring fees on currency conversions. BTCC.U has a 1.49% expense ratio.

CI Galaxy Ethereum ETF (ETHXF)

Hopes for an Ethereum ETF were dashed recently after providers such as Grayscale and Bitwise withdrew filed prospectuses for futures-based ETFs. “The retraction of these Ethereum ETF filings may be due to recent SEC guidance,” Geffner says. “For example, the SEC warned Grayscale that one of its underlying assets, Filecoin, qualifies as a security and would be subject to regulatory obligations.”

To circumvent this, you can once again head to the Canadian markets and buy ETHXF, which offers physically backed, spot Ethereum exposure. Shares represent a small fraction of Ethereum per share, which is all held in audited cold storage. Like BTCC.U, ETHXF is also traded in U.S. dollars, making it easy for U.S. investors to buy and sell. The ETF charges a 0.81% expense ratio.

Copyright 2023 U.S. News & World Report

Continue Reading