Top Cryptocurrency ETFs: A Comprehensive Guide Before Investing

While ETFs are now a major part of crypto, they are actually an old idea from the world of traditional finance (TradFi). Similarly to a mutual fund, ETFs generally track the price of an asset or a group of similar assets. ETFs are easily accessible, as they can be purchased just like a stock or bond on most online brokerage platforms.

The excitement around crypto ETFs largely stems from their anticipated impact on market liquidity and interest and a sense of regulatory and institutional acceptance. Indeed, the approval of high-profile spot Bitcoin and Ether ETFs in 2024 preceded a historic rebound in the crypto market, and increased interest in crypto from both financial and political institutions across the world. 

That all being said, ETFs aren’t necessarily a pure benefit for crypto. Most importantly, the way ETFs work doesn’t allow for self-custody, which calls into question just how directly ETFs can offer investors crypto exposure.

But how exactly do crypto ETFs work? What kinds of ETFs are there, and should you invest in an ETF or buy and manage your crypto yourself? 

Let’s dive into crypto ETFs.

What is an ETF in Crypto?

While ETFs are a more recent phenomenon in the crypto ecosystem, they have existed for a long time within the context of traditional finance (TradFi).

ETF Meaning and Definition

An exchange-traded fund (ETF) is a kind of financial instrument that allows investors to gain exposure to a group of assets. You can think of an ETF as an investment pool that tracks the performance of a group of assets such as stocks or bonds. These can be appealing because they give investors exposure to certain groups of assets without having to trade individual assets. 

As an example, take the Vanguard Total Stock Market Index Fund (VTI), which basically tracks how the overall US stock market is doing. If investors believed that the stock market as a whole was going to rise, they could buy shares of VTI, saving money on fees while maintaining a diverse investment portfolio.

Generally speaking, cryptocurrency ETFs work just like this, allowing investors to bet on the price of a cryptocurrency without having to buy it directly. How this happens exactly depends on what kind of ETF it is. 

How Crypto ETFs Work

Crypto ETFs begin with fund providers. These large investment and wealth management firms purchase the underlying cryptocurrency asset, create a fund to hold the asset, and then issue shares in that fund for individual investors to purchase.

Crypto ETFs make it possible to get exposure to a cryptocurrency without actually having to buy it directly. This could be attractive to investors who are interested in crypto but have been discouraged from buying, whether due to its unclear regulatory status, or the complexity that many newcomers find in buying and securely storing crypto.

It’s important to note then, that when you buy shares in a crypto ETF, you are gaining indirect exposure to that cryptocurrency. For one thing, it means that you don’t actually own that cryptocurrency. In addition, while the price of shares in an ETF is heavily tied to the price of the underlying asset, ETF share prices are ultimately dictated by their market, and won’t necessarily match up exactly to the actual price of the asset they are tracking.

The Different Types of Crypto ETFs and Stocks

Crypto ETFs

There are two kinds of crypto ETFs trading on the market: spot crypto ETFs, and crypto futures ETFs. Both track the price of a crypto asset but do so in very different ways.

Spot Crypto ETFs

Spot crypto ETFs track the “spot” price of a cryptocurrency. To clarify, spot price refers to the actual, real-time price that a cryptocurrency is trading for on marketplaces. Spot ETFs hold a certain amount of crypto in their funds, and issue shares based on that amount and market demand for ETF shares. Thus, spot ETFs can offer investors more direct exposure to crypto than other types of ETFs might offer.

Spot Bitcoin ETFs

Naturally, ETFs tracking the price of the world’s largest cryptocurrency are some of the most popular on the market. While the first Bitcoin futures ETF was approved for trade in the US in 2021, spot Bitcoin ETFs did not receive regulatory approval until January 2024.

While US regulators had long taken an adversarial role against crypto ETFs, this began to change in June 2023, after Blackrock applied with the SEC to launch a Spot Bitcoin ETF. After months of speculation and anticipation, the SEC approved 11 Spot Bitcoin ETFs in January 2024. Explore the history of Bitcoin ETFs in our article, from their early proposals to their growing impact on the financial markets.

Some of the largest Bitcoin ETFs include the Grayscale Bitcoin Trust (GBTC), BlackRock’s iShares Bitcoin Trust ETF (IBIT), and the ProShares Bitcoin Strategy ETF (BITO).

Spot Ether ETFs

Expectations for a spot ETH ETF approval raised significantly following the success of the Spot Bitcoin ETF applications. Even so, with SEC representatives continuing to assert that Ether might be a security, the ETF approval seemed unlikely for months. Nevertheless, the SEC finally approved the first spot of Ether ETFs in a surprising turn in May 2024.

The nine US spot Ether ETFs began trading on July 23rd, 2024, netting a combined trading volume of more than $1B. Notably, this marked a much slower start for spot ETH ETFs as compared to Bitcoin spot ETFs, which saw $4.66B in trading volume on their first day. Some of the most notable ETH ETFs include the Grayscale Ethereum Mini Trust (ETH), the Franklin Ethereum Trust (EZET), the VanEck Ethereum Trust (ETHV), and the Grayscale Ethereum Trust (ETHE). Discover the journey of Spot Ether ETFs in our article, highlighting their origins and impact on the broader financial ecosystem.

Crypto Futures ETF

A crypto futures ETF tracks the price of crypto futures contracts. To explain, a futures contract is an agreement to buy or sell a cryptocurrency at a predetermined price, on a specific date in the future.

If more people expect the price of the underlying cryptocurrency to rise, the value of the contract could be higher than the cryptocurrency’s spot price. On the other hand, if more people are betting on its price to fall, the value of the futures contract could be lower than the spot price. As a result, the prices of crypto futures contracts tend to diverge from the cryptocurrency’s spot price based on the sentiment of futures traders.

Company Stocks Related to Crypto or Blockchain

Crypto ETFs are not the only way to gain indirect access to a cryptocurrency. Some investors may choose to buy stocks in companies that are themselves heavily invested, either in a specific cryptocurrency or in blockchain technology in general.

Stocks of Companies Holding Bitcoin

Stocks of companies that have significant Bitcoin holdings can potentially offer indirect exposure to Bitcoin because there will be a relationship between the price of Bitcoin and the company’s stock price. Of course, this exposure is much less direct than even a futures ETF, as there are many factors other than the price of BTC affecting the company’s stock price.

The intelligence software firm MicroStrategy (MSTR) is by far the largest corporate holder of Bitcoin, having purchased well over 150,000 BTC since 2020. Other significant corporate holders of Bitcoin include Marathon Digital (MARA), Galaxy Digital (GLXY), and Tesla (TSLA).

Financial Services Company Stocks

Financial services companies dealing with crypto are another sector whose stock performance can be closely connected to cryptocurrency prices. Most notably this includes cryptocurrency exchanges like Coinbase (COIN), but this also extends to some companies that are more established in tradFi like PayPal (PYPL), Robinhood (HOOD), and Block (SQ).

Crypto and Bitcoin Mining Companies Stocks

Of course, companies involved in crypto mining like Cleanspark (CLSK) and Riot Platforms (RIOT), offer another way of exposure. Notably, many of the largest mining operations also deal in related fields such as mining infrastructure, computing solutions, and energy. Examples include Core Scientific (CORZ), TeraWulf (WULF), and Iris Energy (IREN).

Crypto Index Funds

Index funds for crypto work the same as other index funds – they pool investor funds together and use them to invest in a group of cryptocurrencies as opposed to just one. In the case of crypto, this generally means grouping the largest cryptocurrencies by market cap into a single fund for investors to buy into. Crypto index funds have not seen nearly as much attention as ETFs, though major examples include the Bitwise 10 Crypto Index Fund (BITW), the Bloomberg Galaxy Crypto Index Fund (BGCI), and the Nasdaq Crypto Index Fund (NCI). 

Why Are Spot Crypto ETFs Important?

Of all the types of crypto-related assets that we’ve discussed, spot crypto ETFs remain the most popular way to gain crypto exposure without actually buying any. This has some very important effects on the crypto market at large.

Increased Adoption

The most talked about potential benefit of spot crypto ETFs is that they can help aid crypto adoption. For one thing, giving investors a way into crypto that is familiar to them helps attract people who may have been discouraged by the complexities of buying and holding crypto as a newcomer. 

What’s more, the approval of Spot Bitcoin ETFs and Spot Ether ETFs in the US was widely seen as an institutional stamp of approval. Indeed, many prospective crypto buyers may well have been scared off by the lack of clarity around crypto regulation. The SEC approving the crypto ETFs meant that there were now clear rules and regulations around them for individual and institutional investors. Not to mention that many also viewed the presence of large, well-established financial institutions forming their own ETFs as a sign of a maturing crypto market. 

All of this helps make crypto a more attractive investment class to more people, thus increasing crypto adoption in the long run.

Impact of Spot Crypto ETFs on the Price of Crypto

As mentioned above, spot crypto ETFs have to hold the underlying cryptocurrency asset. This means that increased demand for spot crypto ETFs can lead to increased demand for the underlying asset, which could lead to higher crypto prices and less volatile prices. Then there is the idea that spot crypto ETFs offer validation of crypto as an asset class, which could also increase demand for crypto and thus drive price action.

Contribute to the Overall Liquidity of the Crypto Market

Spot ETFs add major liquidity to crypto markets simply by offering investors more options on how to gain exposure to a given asset. Investors can access spot crypto ETFs through conventional brokerage firms, making it easier for investors to participate in the market, creating larger trade volumes and more efficient, more liquid markets.

Top Crypto ETFs List

The Spot Crypto ETFs

Top 11 Spot Bitcoin ETFs

• Franklin Templeton Digital Holdings Trust (EZBC)
• Bitwise Bitcoin ETF (BITB)
• VanEck Bitcoin Trust (HODL)
• Ark 21Shares Bitcoin ETF (ARKB)
• iShares Bitcoin Trust (IBIT)
• Fidelity Wise Origin Bitcoin Fund (FBTC)
• WisdomTree Bitcoin Fund (BTCW)
• Invesco Galaxy Bitcoin ETF (BTCO)
• Valkyrie Bitcoin Fund (BRRR)
• Hashdex Bitcoin ETF (DEFI)
• Grayscale Bitcoin Trust (GBTC)

Top 9 Spot Ethereum ETFs

• Grayscale Ethereum Mini Trust (ETH),
• Franklin Ethereum Trust (EZET)
• VanEck Ethereum Trust (ETHV)
• Bitwise Ethereum ETF (ETHW)
• 21Shares Core Ethereum ETF (CETH)
• Fidelity Ethereum Fund (FETH)
• iShares Ethereum Trust (ETHA)
• Invesco Galaxy Ethereum ETF (QETH)
• The Grayscale Ethereum Trust (ETHE)

List of Company Stocks Related to Crypto

• MicroStrategy (MSTR)
• Galaxy Digital (GLXY)
• Coinbase (COIN)
• Marathon Digital (MARA)
• Cleanspark (CLSK)
• Core Scientific (CORZ)
• Riot Platforms (RIOT)
• TeraWulf (WULF)
• Iris Energy (IREN)
• Cipher Mining (CIFR)
• Bitfarms (BITF)

List of Crypto Index Funds

• Global X Blockchain ETF (BKCH)
• VanEck Digital Transformation ETF (DAPP)
• Fidelity Crypto Industry and Digital Payments ETF (FDIG)
• Bitwise 10 Crypto Index Fund (BITW)
• Bloomberg Galaxy Crypto Index Fund (BGCI)
• Nasdaq Crypto Index Fund (NCI)

Understanding the Pros and Cons of Crypto ETFs

Advantages of Crypto ETFs

Convenience

Investors can purchase crypto ETFs on traditional stock exchanges, just as they would stocks or bonds. Generally speaking, this process is far more familiar to the average investor than buying crypto directly from an exchange. Similarly, because the fund provider is the entity that holds the crypto, it eliminates the need for ETF buyers to safeguard their digital assets – they simply trust the fund provider to secure the underlying crypto. This can appeal to buyers intimidated by the prospect of safeguarding their digital assets.  

Regulatory Clarity 

Crypto ETFs are highly regulated financial instruments provided by accredited financial institutions. This creates an environment for investors that may feel more secure than trading cryptocurrency directly.

Diversification and Tax Efficiency

Some crypto ETFs bundle together different digital assets in a single fund, giving investors a straightforward way to diversify their portfolios. 

Disadvantages of Crypto ETFs

Management Fees

While ETFs are much more convenient for the average investor to buy than crypto directly, you have to pay for that convenience in the form of management fees. The fees that ETF providers charge will be much more than the one-time transaction fees you would incur buying it yourself.

Price Divergence

Cryptocurrencies have a reasonable reputation as volatile digital assets but ETFs add another layer to this. As discussed previously, market sentiments and demand play a major role in the price of ETF shares. That means that even for spot ETFs designed to track a cryptocurrency’s real-time price, there can often be a difference between the value of an ETF and the value of an ETF’s underlying asset.

Limits to Cryptocurrency Trading

ETFs are sold on conventional stock exchanges and brokerage platforms which means that they are only available during the business hours of the exchange. This can be a problem if you ever need to make a trade outside of these times. In contrast, if you practice self-custody, you can transact with your crypto whenever you want. 

Lack of True Crypto Ownership

The biggest challenge with crypto ETFs is that they do not represent real ownership of crypto. While this is not completely negative as it can still bring people into the ecosystem, it’s ultimately at odds with the founding philosophy of crypto. 

As Ledger CTO Charles Guillemet laid out in his BTC Prague 2024 Keynote, ‘Don’t Buy Into an ETF’, “The purpose of Bitcoin is permissionless money: you don’t have to ask anyone permission to own your value and to use it.” ETFs inherently negate this aspect of crypto for those buying into them.

Crypto ETFs vs. Direct Investment in Crypto: What is the difference?

Comparison of Crypto ETFs vs. Direct Investment in Crypto

Final Thought on Crypto ETFs

All things considered, even though ETFs bring people into crypto, buying into an ETF opens you up to the very third-party risks that crypto was built to overcome. The revolutionary power of crypto comes from its permissionless nature, and the only way to take advantage of that is through self-custody.

Fortunately, Ledger’s lineup of secure devices makes it easy to secure and manage your digital assets. Plus, with Ledger Live you can buy your crypto directly through our buy providers, all while enjoying the battle-tested security of your Ledger device.

When you understand the true benefits of crypto and why it exists, nothing beats the sovereignty and individual agency that comes with self-custody. When you’re ready to leap, Ledger devices are here to help ensure that only you can access your crypto.

If you’re considering exploring what crypto has to offer, there’s no need to wait. Explore the Ledger ecosystem today to start your journey to secure self-custody.

FAQs about Crypto ETFs

How to Buy Crypto ETFs?

You can buy crypto ETFs on any conventional stock exchange like the NYSE, or brokerage platforms like Robinhood. Once you have an account on the platform, you can simply navigate to the asset you want to buy and purchase it with fiat currency.

How to Buy Crypto?

To buy crypto using fiat currency, you’ll want to use an on-ramp. While you can find these on centralized and decentralized exchanges, you’ll find that Ledger offers seamless on-ramping within the Ledger Live ecosystem, via partners like MoonPay and Coinify. Here, you can easily buy (and sell) crypto using your regular credit card, in conjunction with your Ledger device.