Short answer: Crypto ETFs are like a crypto representation on traditional stock exchanges. For the long answer, we can start with ETFs themselves. Short for Exchange-Traded Funds (ETFs), they’re centralized financial tools created around 1989, and they had nothing to do with crypto until more recently. As a type of investment fund, it pools money from many investors and uses it to track the price of something. It could be stock market indexes such as S&P500, commodities, such as gold… or decentralized tokens.
ETFs, as the name suggests, trade on stock exchanges. So, buying one isn’t that far from buying any other stock. They’re popular because they offer diversification and professional management without much effort. Naturally, someone was going to think of creating an ETF to track cryptocurrency prices.
What is a Crypto ETF, then?
A Crypto ETF is an institutional-backed and regulated financial product designed to follow the price of a specific cryptocurrency or a basket of them, while trading on a regular stock exchange. Several companies and entrepreneurs have tried to launch one since at least 2013, with a lot of rejections along the way. ETFs are highly regulated, and cryptocurrencies didn’t seem like the most law-abiding citizens in the financial world, so that was hardly a surprise.
In 2021, ProShares finally made it with its Bitcoin Strategy ETF (BITO), the first U.S. product tied to Bitcoin futures. It wasn’t tied directly to Bitcoin, only to its future price, but it was a start. Some years later, in 2024, the US Securities and Exchange Commission (SEC) finally approved the launch of 11 Bitcoin spot ETFs, which hold this asset directly on behalf of investors.
So, we can now divide crypto ETFs into two main types: the ones that only track prices (usually futures contracts), and the ones that hold actual cryptocurrencies on behalf of their clients (spot). In any case, all of them are managed by a financial firm that handles compliance, custody, and daily operations. When shares are bought or sold, the fund adjusts its holdings to keep the ETF price aligned with the crypto market.
That’s important: investing in a crypto ETF doesn’t mean that you actually have cryptocurrencies. The company involved may own them (if it’s a spot ETF), but their clients are paying for the financial product, not for actual coins in a distributed ledger.
Some Benefits, Some Risks
The ease of use is the first advantage we can think of about crypto ETFs, not to mention that they’re “safer” products, or at least, less risky than cryptocurrencies themselves in the sense that a regulated entity is handling them (although that in itself is another risk). They can be bought through regular brokerage accounts, alongside stocks or index funds, without setting up wallets or guarding long recovery phrases. Given that they’re heavily regulated, investors expect a higher level of security and support.
Nothing comes without its downsides, though. Crypto ETFs move with crypto prices, and those prices can swing hard in short periods. A calm interface doesn’t mean a calm market. Fees, of course, are another factor: the firms that issue ETFs don’t offer their services for free. Over time, management costs can eat into returns, which doesn’t happen when holding crypto inside its own network.
There’s also the question of control. As we’ve mentioned above, investors don’t own the coins themselves, so they can’t move them, spend them, or use them inside crypto networks. The exposure is financial, not hands-on. Besides, if these companies own too many tokens, that could be a threat to decentralization itself. In the worst cases, they could heavily influence block production and even governance, given that addresses with more funds are ones with more voting power in most chains.
So, ETFs may be great for beginners, but not for long-term ownership, autonomy, or decentralization.
For those who prefer more decentralized networks with real ownership of assets, DeFi investments are a better option. Obyte, for instance, is a fully decentralized crypto network without miners or “validators”, where anyone can find different DeFi platforms to invest. That includes the DEX Oswap.io and the Pythagorean Perpetual Futures. The best part here is that you’ll own your private keys all the time.
As the old adage says: Not your keys? Not your coins. Crypto ETFs are a popular option, but don’t forget that they aren’t decentralized.
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