2024 has been a big year for the crypto sector, witnessing significant advancements that have turned it into an asset class and a permanent fixture in the financial market. January saw the launch of the first-ever spot Bitcoin exchange-traded funds (ETFs) in the US, followed by spot Ethereum ETFs in July.
One major concern raised by traditional investors about Bitcoin and other cryptocurrencies was the difficulty of managing the complex systems they operate on and the risk of self-custodying. However, the ETFs allow them to gain direct exposure to the digital tokens on a regulated exchange, where the assets are managed on their behalf by an audited custodian.
Unlike close-ended funds and trusts that existed in the crypto realm earlier, these new spot ETFs benefit from their open-ended format. This allows for the creation and redemption of shares, enabling the funds to track the market price of the underlying cryptocurrency without the premiums or discounts often seen in their counterparts.
Additionally, the crypto ETFs provide actual exposure to BTC and ETH, unlike the derivatives-based products that existed before, which offered synthetic exposure based on futures price. The spot Bitcoin and Ethereum ETFs reflect the live market prices of BTC and ETH during trading hours.
These products have simplified cryptocurrency investment for mainstream investors as they can be traded like stocks on regular brokerage platforms. They allow for the inclusion of crypto assets in diversified investment portfolios and tax-advantaged accounts like IRAs. They also eliminate the concerns regarding security with self-custody and trading on crypto-specific exchanges.
Here are some of the best cryptocurrency-backed ETFs to buy in the market today:
1. iShares Bitcoin Trust (IBIT)
The iShares Bitcoin Trust ETF (IBIT), issued by Wall Street heavyweight BlackRock, is considered the first spot Bitcoin ETF approved by the US Securities and Exchange Commission (SEC).
The fund holds around 357,227 BTC, worth $21.3 billion, in assets under management (AUM). IBIT tracks the CME CF Bitcoin Reference Rate, a New York variant, as its benchmark.
It has a minimal 30-day median bid-ask spread of 0.03% and a minor 0.1% discount to net asset value (NAV). IBIT charges a 0.25% sponsor fee, with a waiver down of 0.12% on the first $5 billion in AUM for 12 months.
2. ProShares Bitcoin Strategy ETF (BITO)
The ProShares Bitcoin Strategy ETF (BITO) can be considered if you are looking for a yield from your initial investment. The fund invests in Bitcoin futures and Bitcoin index-linked swaps through a wholly owned subsidiary, and is collateralized by US Treasury bills.
BITO’s subsidiary will realize the gains on its Bitcoin-linked futures and swaps, and the net income from these transactions will be passed on to BITO investors and characterized as dividends. BITO last paid shareholders a monthly dividend of around $1.21 per share. However, it should be noted that the distribution figure can fluctuate and is sometimes not guaranteed. The ProShares Bitcoin Strategy ETF charges a 0.95% expense ratio.
2. Global X Blockchain ETF (BKCH)
The Global X Blockchain ETF is designed to benefit investors from blockchain and crypto-related stocks, such as miners and crypto exchanges. Unlike the ETFs mentioned earlier, BKCH does not hold spot cryptocurrency, futures, swaps, or options.
Instead, the fund invests in crypto-related equities represented by the Solactive Blockchain Index. With BKCH, investors can expect shares in the crypto exchange Coinbase, Bitcoin miner Hut 8, and digital asset manager Galaxy Digital Holdings. The ETF charges a 0.5% expense ratio.
3. Fidelity Crypto Industry and Digital Payments ETF (FDIG)
The Fidelity Crypto Industry and Digital Payments ETF is a fund that seeks to track the performance of a collection of businesses engaged in cryptocurrency, blockchain technology, and digital payment processing.
The ETF currently has around 45 holdings, with the top 10 stocks accounting for nearly 60% of its net assets. Three of the biggest stocks investors get exposure to with FDIG are Coinbase, Marathon Digital, and Bitcoin miner Riot Platforms. 60% of the index comprises crypto and blockchain firms.
The maximum weighting for each stock in FDIG is 22.5%, supporting $20 million in average daily volume. The index is rebalanced every quarter.
4. Grayscale Ethereum Trust (ETHE)
The Grayscasle Ethereum Trust (ETHE), which was launched in 2017, is considered to be the first exchange-traded product (ETP) in the world to have been tracking the price of Ether (ETH). However, until July 2024, it was close-ended trust fund, and as a result, ETHE has historically traded either at discounts or premiums to its NAV due to excessive selling or buying pressure.
The conversion into an ETF has solved this issue. ETHE remains one of the largest investment fund in the world that is backed by Ethereum, holding $4.2 billion in AUM in custody with Coinbase Global.
The one drawback of ETHE is its comparatively high 2.5% sponsor fee, which has caused investors to move into other spot Ethereum ETFs. To attract more buy-and-hold investors, ETHE recently completed a spin-off by distributing 10% of its AUM to shareholders in the form the Grayscale Ethereum Mini Trust (ETH), which currently has just over $911 million under management. This fund also charges a lower sponsor fee compared to ETHE, at 0.15%.
5. Bitwise 10 Crypto Index Fund (BITW)
The Bitwise 10 Crypto Index Fund (BITW) is an ETF that tracks the performance of 10 of the largest investable cryptocurrencies, accounting for approximately 70% of the total crypto market. Unlike other ETFs on this list, Bitwise has closed private placement on its fund, but the accredited investor and minimum holding period requirements have been scrapped because it is now traded over the counter.
A drawback investors see with the ETF is its relatively high 2.5% expense ratio, which Bitwise says includes the management fee, custody charges for holding the fund’s assets, customary fee, and expenses of the fund administrator and auditor.
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